UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 15, 1997
DOCTORS HEALTH, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 333-1926 52-1907421
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
10451 Mill Run Circle
10th Floor
Owings Mills, Maryland
21117
(Address of principal executive offices)
(Zip Code)
(410) 654-5800
(Registrant's telephone number, including area code)
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Item 5. Other Events
On July 7, 1997, Doctors Health, Inc., a Maryland corporation
(the "Registrant"), entered into a Preferred Stock Purchase Agreement, as
amended on July 15, 1997 (the "Preferred Stock Purchase Agreement"), with The
Beacon Group III - Focus Value Fund, L.P. ("Beacon") pursuant to which the
Registrant agreed to sell and Beacon agreed to purchase three million
(3,000,000) shares of the Registrant's Series D Convertible Preferred Stock for
a purchase price of $30 million, subject to the terms and conditions thereof.
The Registrant closed the transaction on July 15, 1997, with an initial purchase
of two million (2,000,000) shares for $20 million. A subsequent purchase is
expected to take place on or before June 30, 1998 of an additional one million
(1,000,000) shares for $10 million subject to the satisfaction of certain
contingencies or conditions precedent by such date as provided in the Preferred
Stock Purchase Agreement, some of which are outside of the control of the
Registrant.
Upon the issuance of the full 3,000,000 shares of Series D Preferred
Stock to Beacon, Beacon will own 100% of the Registrant's issued and outstanding
Series D Preferred Stock and approximately 28.8% of the issued and outstanding
capital stock of the Registrant, on a fully diluted basis.
In connection with the issuance of its Series D Preferred Stock to
Beacon pursuant to the Preferred Stock Purchase Agreement, the Registrant
amended its Amended and Restated Articles of Incorporation (the "Restated
Articles") to, among other things, (a) authorize 5,750,000 shares of a new class
of stock designated as Series D Convertible Preferred Stock, (b) amend or revise
certain of the terms and conditions of its currently authorized and issued
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, and
Series C Convertible Preferred Stock, (c) increase the size of its Board of
Directors from nineteen to twenty members, (d) elect two of Beacon's designees
to the Registrant's Board of Directors and Executive Committee, (e) modify the
composition and authority of the Registrant's Executive Committee, and (f)
change the name of the Registrant to "Doctors Health, Inc." The Registrant also
agreed to use its best efforts to change is state of incorporation from Maryland
to Delaware within sixty days of the closing of the initial purchase
transaction, subject to the approval of the Registrant's Board of Directors and
stockholders.
The Series D Preferred Stock issued to Beacon is senior to all other
classes of the Registrant's capital stock with respect to payment of dividends
and distributions and liquidation rights. The Series D Preferred Stock also is
subject to redemption by the Registrant at the election of the holder of the
Series D Preferred Stock at $10 per share, plus accrued but unpaid dividends,
after five years from the issuance date of the Series D Preferred Stock and is
convertible at an adjustable rate into the Registrant's Class C Common Stock at
the option of the holder of the Series D Preferred Stock and automatically upon
a qualifying initial public offering of the Registrant.
The number of shares of Class C Common Stock issuable upon conversion
of the Series D Preferred Stock is subject to adjustment pursuant to two stock
adjustment agreements between the Registrant and Beacon. The first stock
adjustment agreement provides for an upward or downward adjustment in the number
of shares issuable to Beacon based upon the Medicare Medical Loss Ratio and the
number of Medicare enrollees in the Registrant's Medicare global risk service
agreements with health maintenance organizations and other payors. Pursuant to
the first agreement, the number of shares issuable to Beacon could be reduced to
2,727,272 shares of Class C Common Stock or increased to 5,454,000 shares of
Class C Common Stock. The second stock adjustment agreement provides that it
will supersede the first stock adjustment agreement if the 105th U.S. Congress
makes certain changes in the Medicare program to reduce payments to health
maintenance organizations and medical management companies such as the
Registrant. Pursuant to the second stock adjustment agreement, the number of
shares issuable to Beacon could be reduced to 2,727,272 shares of Class C Common
Stock or increased to 7,500,000 shares of Class C Common Stock. The second stock
adjustment letter is subject to the approval of the Executive Committee of the
Registrant. Certain members of the Registrant's management have agreed to
indemnify and hold Beacon harmless in the event the Executive Committee fails to
approve the second stock adjustment agreement.
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In connection with the transactions contemplated by the Preferred Stock
Purchase Agreement, the Registrant modified the composition and authority of the
Executive Committee of its Board of Directors. The Executive Committee is
comprised of seven members (two Beacon directors, one Series C Preferred
Director, three physician directors, and the Registrant's Chief Executive
Officer). To the extent permitted by law, the authority of the Board to act on
all matters is vested in and exercised by the Executive Committee. In the event
of certain default situations related to the Registrant's not meeting certain
targets with respect to its net income and its medical loss ratio, Beacon has
the right to take control of the Executive Committee and the Board of Directors.
In connection with Beacon's investment in the Registrant, the
Registrant also entered into, among other agreements, (a) a Shareholders' and
Voting Agreement, which supersedes the Registrant's current Stockholders
Agreement and provide for certain restrictions on the sale and transfer of all
classes of the Registrant's capital stock, and (b) a Registration Rights
Agreement with Beacon which provides Beacon with certain rights to have the
Registrant register with the Securities and Exchange Commission Beacon's shares
of Series D Preferred Stock for resale.
On July 9, 1997, the Registrant entered into a Stock Purchase
Agreement, as amended on July 15, 1997 (the "Stock Purchase Agreement") by and
among UniversityCare, L.L.C. ("UniversityCare"), Genesis Health Ventures, Inc.
("Genesis"), and Med-Lantic Management Services, Inc. ("Med-Lantic"), and closed
the transactions contemplated by the Stock Purchase Agreement on July 15, 1997.
Pursuant to the Stock Purchase Agreement and related transactions, (i) Genesis,
the holder of the Registrant's Series C Preferred Stock, assigned and delegated
to UniversityCare all of Genesis' rights and obligations under that certain
Purchase Agreement dated May 2, 1997, which provided for the purchase by Genesis
from Med-Lantic of all 355,556 shares of the Registrant's Series B Preferred
Stock held by Med-Lantic (the "Med-Lantic Shares"); (ii) UniversityCare
purchased from Med-Lantic the Med-Lantic Shares at a purchase price of $11.25
per share; (iii) the Registrant issued and delivered to Med-Lantic 60,290 shares
of the Registrant's Series B Preferred Stock, which constituted the accrued and
unpaid dividends, and interest, on the Med-Lantic Shares (the "Dividend Shares")
and the Registrant issued and delivered 22,222 shares of the Registrant's Series
B Preferred Stock to H.C. Wainwright & Co., Inc. as reimbursement for certain
investment advisory services and related expenses (the "Expense Shares"); and
(iv) the Dividend Shares and the Expense Shares were transferred to
UniversityCare for a purchase price of $11.25 per share. As a result of these
transactions, UniversityCare is the holder of 438,068 shares of the Registrant's
Series B Preferred Stock, which constitute all of the issued and outstanding
shares of Series B Preferred Stock of the Registrant.
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Item 7. Exhibits
Number Title
3.1 Articles of Amendment and Restatement of the Registrant, dated
July 15, 1997.
3.2 Agreement, dated July 15, 1997, between the Registrant and The
Beacon Group III - Focus Value Fund, L.P.
3.3 Agreement, dated July 15, 1997, between the Registrant and The
Beacon Group III-Focus Value Fund, L.P.
3.4 Amended and Restated Bylaws of the Registrant.
10.1 Preferred Stock Purchase Agreement dated July 7, 1997 by and
between the Registrant and The Beacon Group III - Focus Value
Fund, L.P.
10.2 Amendment to Stock Purchase Agreement, dated as of July 15,
1997, by and between the Registrant and The Beacon Group III -
Focus Value Fund, L.P.
10.3 Amended and Restated Stock Purchase Agreement dated July 9,
1997, as amended July 15, 1997, by and among the Registrant,
UniversityCare L.L.C., Genesis Health Ventures, Inc., and
Med-Lantic Management Services, Inc.
10.4 Shareholders' and Voting Agreement, dated July 15, 1997, by
and among the Registrant, The Beacon Group III - Focus Value
Fund and other shareholder signatories.
17.1 Resignation letter of Robert S. Zetzer as Director.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
DOCTORS HEALTH, INC.
Date: July 21, 1997 /s/ Stewart B. Gold
--------------------
Stewart B. Gold
President
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EXHIBITS
Exhibit Title
3.1 Articles of Amendment and Restatement of the Registrant, dated
July 15, 1997.
3.2 Agreement, dated July 15, 1997, between the Registrant and The
Beacon Group III - Focus Value Fund, L.P.
3.3 Agreement, dated July 15, 1997, by and between the Registrant
and The Beacon Group III-Focus Value Fund, L.P.
3.4 Amended and Restated Bylaws of the Registrant.
10.1 Preferred Stock Purchase Agreement dated July 7, 1997 by and
between the Registrant and The Beacon Group III - Focus
Value Fund, L.P.
10.2 Amendment to Stock Purchase Agreement, dated as of July 15,
1997, by and between the Registrant and The Beacon Group III -
Focus Value Fund, L.P.
10.3 Amended and Restated Stock Purchase Agreement dated July 9,
1997, as amended July 15, 1997, by and among the Registrant,
UniversityCare L.L.C., Genesis Health Ventures, Inc., and
Med-Lantic Management Services, Inc.
10.4 Shareholders' and Voting Agreement, dated July 15, 1997, by
and among the Registrant, The Beacon Group III - Focus Value
Fund and other shareholder signatories.
17.1 Resignation letter of Robert S. Zetzer as Director.
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PREFERRED STOCK PURCHASE AGREEMENT
by and between
DOCTORS HEALTH SYSTEM, INC.
and
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
dated as of
July 7, 1997
Exhibit 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
DOCTORS HEALTH SYSTEM, INC.
Doctors Health, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland as follows:
FIRST: The Corporation desires to amend and restate its
charter in its entirety by striking out Articles FIRST through SEVENTH of the
Articles of Incorporation and by substituting in lieu thereof the following:
ARTICLE I
NAME
The name of the corporation is: "DOCTORS HEALTH, INC."
ARTICLE II
PURPOSES FOR WHICH THE CORPORATION IS FORMED
The purposes for which the Corporation is formed are to carry
on any and all business, transactions and activities permitted by the Maryland
General Corporation Law ("MGCL") that may be deemed desirable by the Board of
Directors of the Corporation (the "Board"), as well as all activities and things
necessary and incidental thereto, to the full extent empowered by the MGCL.
ARTICLE III
RESIDENT AGENT AND PRINCIPAL OFFICE
The post office address of the principal office of the
Corporation in this State is 10451 Mill Run Circle, Tenth Floor, Owings Mills,
Maryland 21117. The resident agent of the Corporation in this State is Paul A.
Serini, whose post office address is 10451 Mill Run Circle, Tenth Floor, Owings
Mills, Maryland 21117. Said resident agent is a citizen of the State of Maryland
and actually resides therein.
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ARTICLE IV
AUTHORIZED STOCK
The Corporation is authorized to issue 68,438,068 shares of
capital stock, of which 20,700,000 shares are Class A Common Stock, par value of
$0.01 per share (the "Class A Common Stock"), 10,000,000 shares are Class B
Common Stock, par value of $0.01 per share (the "Class B Common Stock"),
29,050,000 shares are Class C Common Stock, par value of $0.01 per share (the
"Class C Common Stock") (the Class A Common Stock, the Class B Common Stock and
the Class C Common Stock collectively being referred to herein as the "Common
Stock"), 1,000,000 shares are Series A Convertible Preferred Stock, par value of
$5.00 per share (the "Series A Preferred Stock"), 438,068 shares are Series B
Convertible Preferred Stock, par value of $11.25 per share (the "Series B
Preferred Stock"), 1,500,000 shares are Series C Convertible Preferred Stock,
par value $17.50 per share (the "Series C Preferred Stock"), and 5,750,000
shares are Series D Convertible Preferred Stock, par value of $10.00 per share
("Series D Preferred Stock" and in combination with any of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, "Preferred
Stock"). Upon conversion of the Common Stock pursuant to Subsection A.4, the
Corporation shall thereafter be authorized to issue 50,000,000 shares of Class A
Common Stock. The aggregate par value of all shares having par value that the
Corporation is authorized to issue prior to conversion of the Common Stock
pursuant to Subsection A.4 is $94,275,765.
The stockholders of the Corporation shall be entitled to vote
on such matters as specifically provided herein or as otherwise required by the
MGCL. The preferences, voting powers, restrictions, limitations as to dividends,
rights and qualifications of Common Stock and Preferred Stock are as follows:
A. COMMON STOCK.
Except as expressly set forth herein, shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock shall have the same
preferences, rights and voting powers, and shall be identical in all respects
and will entitle the holders thereof to the same rights and privileges.
Sufficient shares of Class C Common Stock shall at all times be reserved by the
Corporation for issuance to the holders of the shares of Preferred Stock upon
conversion of all of the shares of Preferred Stock into shares of Class C Common
Stock.
1. Voting Rights.
(a) General Provisions. Except as otherwise provided herein,
every holder of Common Stock shall be entitled to cast, in person or by proxy,
one vote for each share of Common Stock held of record by such holder on all
matters to be voted on by stockholders. The holders of shares of Common Stock
shall vote together with the holders of shares of Preferred Stock on all matters
submitted to a vote of
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stockholders and not as a separate series or class, except as otherwise provided
herein.
(b) Class A Common Stock. The holders of shares of Class A
Common Stock, voting separately as a class, shall be entitled to elect six
directors of the Corporation (the "Class A Common Directors"). The affirmative
vote of a majority of the shares of Class A Common Stock represented in person
or by proxy at a meeting at which a quorum of Class A Common Stock is present
shall be sufficient to approve any matter with respect to which such holders are
entitled to vote; provided, however, that the affirmative vote of a plurality of
all votes cast shall be sufficient to elect a Class A Common Director. The
holders of Class A Common Stock, at any annual meeting or upon a call of a
special meeting of holders of Class A Common Stock by holders of not less than
25% of the shares of Class A Common Stock then outstanding, voting as a single
class, may remove any Class A Common Director at any time and from time to time
with or without cause, by the affirmative vote of 80% of all of the votes
entitled to be cast for the election of a Class A Common Director, and may elect
a successor to fill any resulting vacancies for the remainder of the term of
such director. If any Class A Common Director shall cease to be a director for
any reason (including death, resignation, removal or any other cause), the
vacancy shall be filled by a vote of the remaining Class A Common Directors
(unless, with respect to removal, the holders of Class A Common Stock have
elected a successor Class A Common Director pursuant to the provisions hereof).
If there are no such remaining directors, then upon a call of a special meeting
of holders of Class A Common Stock, by any such holder, the vacancy shall be
filled by the vote of the holders of Class A Common Stock, voting separately as
a class.
(c) Class B Common Stock. The holders of shares of Class B
Common Stock, voting separately as a class, shall be entitled to elect eight
directors of the Corporation (the "Class B Common Directors"). The affirmative
vote of a majority of the shares of Class B Common Stock represented in person
or by proxy at a meeting at which a quorum of Class B Common Stock is present
shall be sufficient to approve any matter with respect to which said holders are
entitled to vote; provided, however, that the affirmative vote of a plurality of
all votes cast shall be sufficient to elect a Class B Common Director. The
holders of Class B Common Stock, at any annual meeting or upon a call of a
special meeting of holders of Class B Common Stock by holders of not less than
25% of the shares of Class B Common Stock then outstanding, voting as a separate
class, may remove any Class B Common Director at any time and from time to time
with or without cause, by the affirmative vote of a majority of all of the votes
entitled to be cast for the election of a Class B Common Director, and may elect
a successor to fill any resulting vacancies for the remainder of the term of
such director. If any Class B Common Director shall cease to be a director for
any reason (including death, resignation, removal or any other cause), the
vacancy shall be filled by a vote of the remaining Class B Common Directors
(unless, with respect to removal, the holders of Class B Common Stock have
elected a successor Class B Common Director pursuant to the provisions hereof).
If there are no such remaining directors, then upon a call of a special meeting
of holders of Class B
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Common Stock, by any such holder, the vacancy shall be filled by the vote of the
holders of Class B Common Stock, voting separately as a class.
(d) Class C Common Stock.
(i) Upon conversion of all of the shares of Series A Preferred
Stock then outstanding into shares of Class C Common Stock ("Converted Series A
Stock"), the holders of Converted Series A Stock ("Converted Series A
Stockholders"), voting separately as a sub-class, shall be entitled to elect one
Director of the Corporation ("Converted Series A Director").
(ii) Upon conversion of all of the shares of Series B
Preferred Stock then outstanding into shares of Class C Common Stock ("Converted
Series B Stock"), the holders of shares of Converted Series B Stock ("Converted
Series B Stockholders"), voting separately as a sub-class, shall be entitled to
elect one Director of the Corporation ("Converted Series B Director").
(iii) Upon conversion of all of the shares of Series C
Preferred Stock then outstanding into shares of Class C Common Stock ("Converted
Series C Stock"), the holders of Converted Series C Stock ("Converted Series C
Stockholders"), voting separately as a sub-class, shall be entitled to elect two
Directors of the Corporation ("Converted Series C Directors").
(iv) Upon conversion of all of the shares of Series D
Preferred Stock then outstanding into shares of Class C Common Stock ("Converted
Series D Stock"), the holders of Converted Series D Stock ("Converted Series D
Stockholders"), voting separately as a sub-class, shall be entitled to elect two
Directors of the Corporation ("Converted Series D Directors").
(v) It is the intent of this Subsection that upon conversion
of all of the shares of Preferred Stock then outstanding into shares of Class C
Common Stock, the holders of shares of Class C Common Stock, voting separately
as sub-classes, shall be entitled to elect in the aggregate six Directors
thereafter (all such directors being hereinafter referred to as the "Class C
Common Directors").
(vi) The affirmative vote of a majority of the shares of Class
C Common Stock represented in person or by proxy at a meeting at which a quorum
of Class C Common Stock is present shall be sufficient to approve any matter
with respect to which said holders are entitled to vote, except for matters
relating to the election or removal of directors.
(vii) When Converted Series A Stockholders, Converted Series B
Stockholders, Converted Series C Stockholders or Converted Series D Stockholders
vote on the election of Converted Series A Directors, Converted Series B
Directors, Converted Series C Directors or Converted Series D Directors,
respectively, the affirmative vote of a plurality of all votes cast shall be
sufficient to elect a Converted Series A Director, Converted Series B Director,
Converted Series C Directors or
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Converted Series D Director, as the case may be. Each share of Converted Series
A Stock, Converted Series B Stock, Converted Series C Stock and Converted Series
D Stock, as the case may be, may be voted for as many individuals as there are
Converted Series A Directors, Converted Series B Directors, Converted Series C
Directors and Converted Series D Directors, respectively, to be elected thereby.
(viii) At any annual meeting or upon a call of a special
meeting of holders of Converted Series A Stock, Converted Series B Stock,
Converted Series C Stock or Converted Series D Stock by holders of not less than
25% of the shares of Converted Series A Stock, Converted Series B Stock,
Converted Series C Stock or Converted Series D Stock, as the case may be, then
outstanding, Converted Series A Stockholders, Converted Series B Stockholders,
Converted Series C Stockholders or Converted Series D Stockholders, as the case
may be, may remove any Converted Series A Director, Converted Series B Director,
Converted Series C Director or Converted Series D Director, respectively, at any
time and from time to time with or without cause, voting separately as a
sub-class, by the affirmative vote of 80% of all of the votes entitled to be
cast for the election of a Converted Series A Director, Converted Series B
Director, Converted Series C Director or Converted Series D Director, as the
case may be, and may elect a successor to fill any resulting vacancies for the
remainder of the term of such Director.
(ix) If any Converted Series C Director or Converted Series D
Director shall cease to be a Director for any reason (including death,
resignation, removal or any other cause), the vacancy shall be filled by a vote
of the remaining Converted Series C Director or Converted Series D Director, as
the case may be, unless with respect to removal, the holders of Converted Series
C Stock or Converted Series D Stock have elected a successor Converted Series C
Director or Converted Series D Director pursuant to the provisions hereof. If
there is no such remaining Director, then upon a call of a special meeting of
holders of Converted Series C Stock or Converted Series D Stock, as the case may
be, by any such holder, the vacancy shall be filled by the vote of the holders
of Converted Series C Stock or Converted Series D Stock, as the case may be,
voting separately as a sub-class.
(x) If the Converted Series A Director or Converted Series B
Director shall cease to be a Director for any reason (including death,
resignation, removal or any other cause), the vacancy shall be filled by a vote
of the holders of Converted Series A Stock or Converted Series B Stock, as the
case may be, voting separately as a sub-class.
2. Dividends. Subject to the provisions of law and these
Articles, dividends may be declared and paid on Common Stock at such time and in
such amounts as the Board may deem advisable; provided that, in all events, no
dividends shall be paid with respect to shares of Common Stock until such time
as all of the then outstanding Preferred Stock has been either redeemed by the
Corporation or converted into shares of Common Stock as provided herein, and, in
connection with
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such redemption or conversion, all accrued and unpaid dividends on the Preferred
Stock shall have been paid in full.
3. Liquidation Rights. In the event of the dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts required to be paid to the holders of
Preferred Stock as provided in these Articles, each share of Common Stock shall
be entitled to share ratably with all other shares of Common Stock in the
remaining net assets of the Corporation.
4. Conversion of Class A Common Stock, Class B Common Stock
and Class C Common Stock. Immediately prior to the consummation of any firm
commitment, underwritten initial public offering of Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
(i) each share of Class A Common Stock, Class B Common Stock and Class C Common
Stock shall be converted, without any action on the part of the holder thereof
or the Corporation, into an identical share of Class A Common Stock, (ii) all
references in these Articles to Class A Common Stock, Class B Common Stock and
Class C Common Stock, respectively, shall be deemed to refer to Class A Common
Stock, and (iii) all special rights granted to the holders of Class A Common
Stock, Class B Common Stock, Class C Common Stock, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock hereunder shall cease and
terminate. At least 20 days prior written notice of the date fixed and place
determined for conversion shall be sent by first class mail, postage prepaid, to
the address of every holder of shares of Common Stock as shown in the records of
the Corporation. On or before the date fixed for conversion, each holder of
shares of Common Stock shall surrender the Certificates representing such shares
to the Corporation at the place designated in such notice and shall thereafter
receive certificates for the number of full shares of Class A Common Stock to
which such holder is entitled.
5. Certain Permitted Redemptions. The Corporation shall not
repurchase any shares of its outstanding Common Stock without the consent of the
holders of a majority of the holders each series of Preferred Stock voting
separately as a class on as converted basis except as follows:
(a) a repurchase of shares of Class A Common Stock owned by
any Management Stockholder as and to the extent required (or permitted with the
approval of the Board of Directors) by such Management Stockholder's Management
Employment Agreement or the Shareholders' and Voting Agreement dated July 15,
1997 (the "Shareholders Agreement") by and among the Corporation and certain of
its stockholders;
(b) a repurchase of shares of Common Stock owned by any
employee of the Corporation or physician affiliated with the Company, as
provided in any employment, stock grant or physician participation or similar
agreement approved
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between the Corporation and/or any of its affiliates and such employee, the
terms of which have been approved by the Executive Committee (as defined in
ARTICLE V hereof), upon such employee's or physician's death, disability,
termination of employment, or otherwise; and
(c) a repurchase of shares of Class B Common Stock issued by
the Corporation to Medical Holdings Limited Partnership (the "LP") upon the
termination of the status of any physician as a limited partner of the LP (a
"Physician Interest Holder") in the amount deemed necessary by the Board of
Directors at such time to ensure that the withdrawal of such Physician Interest
Holder increases the percentage ownership interests in the Corporation of all
other stockholders of the Corporation to the same extent that the indirect
percentage ownership interests in the Corporation of the remaining Physician
Interest Holders are increased. Such repurchase shall be for a repurchase price,
if any, equal to the amount that the Corporation requires the LP to pay to such
withdrawing Physician Interest Holder upon his termination.
B. GENERAL PROVISIONS FOR PREFERRED STOCK.
1. Definitions. In addition to any other terms defined
herein, the following terms shall have the meanings indicated for purposes of
this ARTICLE IV:
"Beacon" means The Beacon Group III - Focus Value Fund, L.P.,
and its successors and assigns.
"Business Day" means any day (i) that is not a Saturday or
Sunday or (ii) on which banking institutions in New York, New York or Baltimore,
Maryland are required to be open for business.
"Common Stock Equivalent" means securities convertible into,
or exchangeable or exercisable for, shares of Common Stock or other Common Stock
Equivalents.
"Conversion Ratio," with respect to a series of Preferred
Stock and determined as of any date, shall equal the number of shares of Common
Stock into which one share of such series of Preferred Stock is convertible
pursuant to the terms of this ARTICLE IV.
"Current Market Price" means, in respect of any share of
Common Stock on any date herein specified, (i) if the shares of Common Stock are
publicly traded, the average of the daily closing prices of the Common Stock for
the twenty consecutive trading days ending on such date, or (ii) if the shares
of Common Stock are not publicly traded, the Fair Market Value per share of
Common Stock as of such date.
"Excluded Securities" means (i) options issued by the
Corporation to its employees or consultants pursuant to the Corporation's
Amended and Restated Omnibus Stock Plan or similar plan (and any shares of
Common Stock issuable thereunder) approved by the Board, (ii) shares of Common
Stock issuable upon conversion, exchange or exercise of any Common Stock
Equivalents outstanding as of
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the applicable Issue Date and (iii) shares of Series D Preferred Stock issued to
Beacon pursuant to the terms of the Preferred Stock Purchase Agreement dated as
of July 7, 1997 by and between the Corporation and Beacon and Stock Dividends
issued with respect thereto.
"Fair Market Value" means the value as determined (unless
expressly otherwise provided herein) by mutual agreement between the Corporation
and the holders of not less than 50% of the issued and outstanding shares of a
series of Preferred Stock with respect to which such determination is made
hereunder or, if the parties are unable to agree, as determined by a nationally
recognized independent investment banking firm selected by mutual agreement
between the Corporation and the holders of not less than 50% of the issued and
outstanding shares of such series of Preferred Stock.
"IPO" means a firm commitment, underwritten initial public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended.
"Issue Date" means, with respect to a series of Preferred
Stock, the date on which shares of such series of Preferred Stock were first
issued.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company or other business entity, trust, unincorporated organization or
government or any agency or political subdivisions thereof.
"Qualified IPO" means a firm commitment, underwritten initial
public offering of Common Stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended (i) resulting in at least
$35,000,000 of net proceeds to the Corporation after deducting underwriting
discounts and commissions and offering expenses and (ii) reflecting an aggregate
market valuation for the Corporation of at least $150,000,000.
"Subsidiary" of any Person means any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
2. Voting.
(a) Whenever any action described herein requires the action
of holders of a series of Preferred Stock, such action shall be deemed to have
occurred upon the approval of holders of a majority (or such higher vote as may
be required elsewhere herein) of the then issued and outstanding shares of such
series of Preferred Stock at a duly convened meeting of such stockholders or by
their written consent in accordance with the then applicable provisions of the
MGCL, and the
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Corporation, in undertaking any action with respect to such holders, shall be
entitled to rely upon a certificate signed by such holders to that effect.
(b) So long as any shares of a series of Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent) of the holder or holders of at a majority of the then
outstanding shares of such series of Preferred Stock:
(i) alter or change the rights, preference or privileges of
the shares of such series of Preferred Stock or otherwise amend these Articles
whether, in either case, by merger, consolidation or otherwise so as to affect
adversely the shares of such series of Preferred Stock;
(ii) increase the authorized number of shares of such series
of Preferred Stock; or
(iii) authorize the issuance of, issue, or sell any additional
shares of such series of Preferred Stock.
3. Dividends. No dividends shall be declared or paid upon, nor
shall any dividend or other distribution be made with respect to, any shares of
any other class or series of stock of, or equity interest in, the Corporation or
any Subsidiary, without the consent of each of the directors elected pursuant to
the terms of these Articles by the holders of Preferred Stock senior in rank,
with respect to dividends, to such stock on which such dividend or other
distribution would be paid.
4. Redemption.
(a) If provision for payment of the redemption price for
shares of Preferred Stock redeemed hereunder has been made by the Corporation,
so long as there is no payment default with respect to deferred portions of such
redemption price, then (i) no dividends shall accrue on the shares of Preferred
Stock to be redeemed after the applicable redemption date, and (ii) as of such
redemption date, all rights of the respective holders of such shares to be
redeemed shall cease, other than the right to receive the applicable redemption
price upon presentation and surrender of the respective certificates
representing such shares.
(b) If the redemption price for any shares to be redeemed
pursuant to these Articles cannot be paid in full because the Corporation is
prohibited by law from making such payment, then those funds that are legally
available will be used to pay, first, accrued but unpaid interest, if any,
second, accrued but unpaid dividends and, third, the applicable redemption price
for the maximum possible number of shares of Preferred Stock that may be
redeemed with such funds (on a series-by-series basis, in accordance with rank)
ratably among the holders thereof, determined by multiplying the total number of
shares of Preferred Stock to be redeemed by a fraction, the numerator of which
shall be the total number of such shares then held by each such
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holder and the denominator of which shall be the total number of such shares
then outstanding. Shares of Preferred Stock not redeemed shall remain
outstanding, and the holders thereof shall be entitled to all rights and
preferences provided herein with respect to such shares; provided, however,
that, at any time thereafter that additional funds of the Corporation are
legally available for the redemption of additional shares of Preferred Stock,
such funds will be used, at the end of the next succeeding fiscal quarter, to
redeem the balance of such shares, or such portion thereof for which funds are
then legally available in accordance with the general provisions of this
Subsection B.4(b). If, at any time, fewer than the total number of shares of
Preferred Stock represented by any certificate are redeemed, a new certificate
representing the number of unredeemed shares of Preferred Stock shall be issued
to the holder thereof without cost to such holder within three Business Days
after surrender by the holder thereof of the certificate representing the
redeemed and nonredeemed shares of Preferred Stock.
(c) If the Corporation for any reason fails to redeem any
shares of Preferred Stock in accordance with this ARTICLE IV on or prior to the
applicable redemption date specified herein, then, notwithstanding anything to
the contrary contained in these Articles, the Corporation may not incur any
additional indebtedness without first obtaining the prior written consent of the
holders of the Preferred Stock to be redeemed, voting as a single class on an as
converted basis, unless the proceeds of such indebtedness are used to pay all
overdue redemption payments in respect of Preferred Stock, including payments of
accrued but unpaid dividends or interest.
(d) No shares of any class of stock of, or equity interest in,
the Corporation or any Subsidiary, shall be redeemed, retired, purchased or
otherwise acquired by the Corporation, except purchases of the Corporation's
interests in a Subsidiary at the time of its organization, without the consent
of the holders of a majority of the then outstanding shares of each series of
Preferred Stock then outstanding that, at the time of such redemption, is senior
in rank, with respect to redemptions, to the stock to be redeemed.
Notwithstanding the foregoing, the Corporation may (i) effect repurchases
permitted by clauses (a) through (c) of Subsection A.5, (ii) cause the
redemption of shares of capital stock of, or equity interests in, its
wholly-owned Subsidiaries without the separate consent of such directors and
(iii) effect redemptions as required by Subsection C.3(b).
5. Conversion.
(a) Notwithstanding anything in these Articles to the
contrary, the Corporation shall not be required to give effect to any adjustment
in any Conversion Ratio unless and until the net effect of one or more
adjustments (each of which shall be carried forward), determined as provided
below, shall have resulted in a change of such Conversion Ratio by at least
one-tenth of one share of Common Stock, and when the cumulative net effect of
more than one adjustment so determined shall be to change such Conversion Ratio
by at least one-tenth of one share of Common Stock, such change in such
Conversion Ratio shall thereupon be given effect.
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(b) For purposes of adjusting a Conversion Ratio pursuant to
Subsections C.4(c), D.4(c), E.4(c) or F.4(c) (with respect to conversion of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, respectively), the aggregate consideration receivable
by the Corporation in connection with the issuance of shares of Common Stock
and/or Common Stock Equivalents shall be deemed to be equal to the sum of the
aggregate offering price (before deduction of underwriting discounts or
commissions and expenses payable to third parties, if any) of all such Common
Stock and/or Common Stock Equivalents plus the minimum aggregate amount, if any,
payable to the Corporation upon conversion, exchange or exercise of any such
Common Stock Equivalents. If the consideration received by the Corporation in
connection with the sale or issuance of shares of Common Stock (or Common Stock
Equivalents) consists, in whole or in part, of property other than cash or its
equivalent, the value of such property shall be the Fair Market Value thereof.
(c) For purposes of adjusting a Conversion Ratio pursuant to
Subsections C.4(c), D.4(c), E.4(c) or F.4(c) (with respect to conversion of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, respectively), the number of shares of Common Stock at
any time outstanding shall mean the aggregate of all shares of Common Stock then
outstanding (other than any shares of Common Stock then owned or held by or for
the account of the Corporation) treating for purposes of this calculation all
Common Stock Equivalents then outstanding as having been converted, exchanged or
exercised.
(d) If the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution and shall thereafter, and before such dividend or
distribution is paid or delivered to stockholders entitled thereto, legally
abandon its plan to pay or deliver such dividend or distribution, then no
adjustment in the relevant Conversion Ratio then in effect shall be made by
reason of the taking of such record, and any such adjustment previously made as
a result of the taking of such record shall be reversed.
(e) The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Preferred Stock that is being converted.
(f) The Corporation shall at no time close its transfer books
against the transfer of any Preferred Stock, or of any shares of Common Stock
issued or issuable upon the conversion of any shares of Preferred Stock, in any
manner that interferes with the timely conversion of such Preferred Stock,
except as may otherwise be required to comply with applicable securities laws.
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(g) The holders of shares of Preferred Stock requesting
conversion of shares into shares of Class C Common Stock shall send a written
notice to the Corporation requesting such conversion and accompanied by the
certificates therefor, duly endorsed for transfer, to the principal office of
the Corporation or the transfer agent, if any, for the Preferred Stock.
Conversion of Preferred Stock pursuant to this ARTICLE IV shall be effective as
of the close of business on the date of receipt of such notice, and the holders
of such converted Preferred Stock shall be treated for all purposes as the
record holders of the shares of Class C Common Stock into which such Preferred
Stock is converted as of such date. As soon as practicable thereafter, the
Corporation shall issue and deliver to such holders a certificate or
certificates for the number of such shares of Class C Common Stock to which they
are entitled as a result of such conversion.
(h) The Corporation shall not, by amendment of these Articles
or through any reorganization, recapitalization, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms and conditions
of these Articles to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of Subsections C.4, D.4, E.4 and F.4 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of Preferred Stock against impairment.
(i) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of Preferred Stock, free from any
preemptive rights, such number of its authorized but unissued shares of Class C
Common Stock as will from time to time be necessary to permit the conversion of
all outstanding shares of Preferred Stock into shares of Class C Common Stock,
and shall take all action required to increase the authorized number of shares
of Class C Common Stock if necessary to permit the conversion of all outstanding
shares of Preferred Stock.
(j) The provisions of Subsections C.4, D.4, E.4 and F.4 shall
not give, or be deemed to give, the Corporation the power or authority to issue
any shares of its capital stock or other securities, or to take any other
action, where such action is otherwise prohibited by another provision hereof.
(k) If the Corporation shall be a party to any transaction
including without limitation, a merger, consolidation, sale of all or
substantially all of the Corporation's assets or a reorganization,
reclassification or recapitalization of the capital stock of the Corporation,
but excluding any transaction for which provision for adjustment of the
applicable Conversion Ratio is otherwise made in Subsection C.4 (with respect to
Series A Preferred Stock), Subsection D.4 (with respect to Series B Preferred
Stock), Subsection E.4 (with respect to Series C Preferred Stock), Subsection
F.4 (with respect to Series D Preferred Stock), (each of the foregoing being
referred to as a "Transaction"), in each case, as a result of which shares of
Common Stock are converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each share of Preferred
Stock shall
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thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Preferred Stock would have been
entitled upon such Transaction; and, in any such case, appropriate adjustment to
the applicable Conversion Ratio (as determined by the Board (including the
Series D Preferred Directors)) shall be made in the application of the
provisions set forth in Subsection C.4, Subsection D.4, Subsection E.4,
Subsection F.4 with respect to the rights and interest thereafter of the holders
of Preferred Stock, to the end that the provisions set forth in Subsection C.4,
Subsection D.4, Subsection E.4, Subsection F.4 shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of Preferred Stock. The
Corporation shall not effect any Transaction (other than a consolidation or
merger in which the Corporation is the continuing corporation) unless prior to
or simultaneously with the consummation thereof the Corporation, or the
successor corporation or purchaser, as the case may be, shall provide in its
charter that each share of Preferred Stock shall be converted into such shares
of stock, securities or property as, in accordance with the foregoing
provisions, each such holder is entitled to receive. The provisions of this
Subsection B.5(k) shall apply similarly to successive Transactions.
6. Liquidation Rights.
(a) The Corporation shall provide at least 30 days prior
written notice of any liquidation, dissolution or winding up of the affairs of
the Corporation giving rise to rights under Subsections C.5, D.5, E.5 and F.5
(liquidation rights of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, respectively), stating a
payment date, the amount of the liquidation payments payable hereunder, if any,
and the place such liquidation payments shall be payable, by first class mail,
postage prepaid, to each holder of Preferred Stock at his address as shown on
the records of the Corporation.
(b) Unless waived by the affirmative vote of the holders of at
least a majority of each series of Preferred Stock, voting as separate series,
the sale, lease or exchange (for cash, shares of stock, securities or other
consideration) of all or substantially all the property and assets of the
Corporation or the merger or consolidation of the Corporation into or with any
other corporation, or the merger or consolidation of any other corporation into
or with the Corporation, shall be deemed to be a dissolution, liquidation or
winding-up, voluntary or involuntary, for the purposes of Subsections C.5, D.5,
E.5 and F.5.
7. Notice of Certain Events. Without limiting the
rights of the holders of Series D Preferred Stock, or the obligations of
the Corporation, set forth in Subsection F.1, if, at any time while any shares
of a series of Preferred Stock are outstanding:
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(a) the Corporation shall declare a dividend or any
other distribution on any of its securities that are junior or pari passu in
rank to such series of Preferred Stock;
(b) the Corporation shall authorize the issuance to the
holders of its Common Stock, of Common Stock Equivalents, or rights or warrants
to subscribe for or purchase shares of its Common Stock or of any other
subscription rights or warrants;
(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of any of its securities that are junior
or pari passu in rank to such series of Preferred Stock;
(d) the Corporation shall authorize the consolidation or
merger of the Corporation into or with any other person, the sale or transfer of
a substantial portion of its capital stock, business or assets to another
person, or any other similar business combination or transaction; or
(e) the Corporation shall authorize the dissolution,
liquidation or winding up, voluntary or involuntary, of the Corporation; then
the Corporation shall promptly deliver to the holders of shares of such series
of Preferred Stock at their last addresses as shown on the books of the
Corporation, at least 15 days before the date hereinafter specified (or the
earlier of the dates hereinafter specified, in the event that more than one date
is specified), a notice describing such event and stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution, rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of the Corporation's Common Stock, Common Stock Equivalents, rights or
warrants of record to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (y) the date on which any such
reclassification, reorganization, recapitalization, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
securities of the Corporation that are junior or pari passu in rank to such
series of Preferred Stock shall be entitled to exchange securities of the
Corporation that are junior or pari passu in rank to such series of Preferred
Stock for securities or other property (including cash), if any, deliverable
upon such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
8. Certain Remedies. Any registered holder of a series of
Preferred Stock may proceed to protect and enforce its rights and the rights
of any other holders of such series of Preferred Stock with any and all remedies
available at law or in equity.
9. Reports as to Adjustments. Upon any adjustment of a
Conversion Ratio then in effect and any increase or decrease in the number of
shares of Common Stock issuable upon the operation of the conversion provisions
set forth in this Articles
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IV, then, and in each such case, the Corporation shall promptly deliver to the
registered holders of the affected series of Preferred Stock as shown on the
books of the Corporation a copy of a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation setting forth in reasonable detail
(a) the event or facts requiring the adjustment, (b) the Conversion Ratio with
respect to such series of Preferred Stock then in effect following such
adjustment, (c) the increased or decreased number of shares of Class C Common
Stock issuable upon the conversion of such series of Preferred Stock as provided
in this ARTICLE IV and (d) the method of calculation used to determine the
foregoing adjustment.
10. Reacquired Shares of Preferred Stock. Any shares of
Preferred Stock converted, redeemed, purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. None of such reacquired shares of Preferred Stock
shall be reissued by the Corporation.
C. SERIES A PREFERRED STOCK.
Series A Preferred Stock shall rank, with respect to dividend
rights, redemption rights and rights on liquidation, winding-up and dissolution
(i) junior to Series D Preferred Stock ("Series A Senior Securities"), (ii) pari
passu to Series C Preferred Stock and (iii) senior to all classes of Common
Stock and Series B Preferred Stock and to each other class or series of capital
stock issued by the Corporation or established by the Board that by its terms is
junior to the Series A Preferred Stock ("Series A Junior Securities").
1. Voting Rights.
(a) General Provisions. Holders of Series A Preferred Stock
shall be entitled to notice of each meeting of all of the Corporation's
stockholders, but shall not be entitled to notice of special or other meetings
of any class of Common Stock or of Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock. The holders of shares of Series A Preferred
Stock shall vote together with the holders of shares of Common Stock and the
remaining Preferred Stock on all matters submitted to a vote of stockholders and
not as a separate series or class, except as otherwise provided herein or
required by law. Except as otherwise provided herein, on all matters to be voted
on by the Corporation's stockholders, every holder of Series A Preferred Stock
shall be entitled to cast, in person or by proxy, that number of votes equal to
the full number of shares of Class C Common Stock into which such holder's
Series A Preferred Stock is then convertible.
(b) Series A Preferred Stock Directors. The holders of shares
of Series A Preferred Stock, voting separately as a class, shall be entitled to
elect one director of the Corporation (the "Series A Preferred Stock Director").
Where the holders of Series A Preferred Stock vote as a class, the affirmative
vote of a majority
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of the shares of Series A Preferred Stock represented in person or by proxy at a
meeting at which a quorum of Series A Preferred Stock is present shall be
sufficient to approve any matter with respect to which said holders are entitled
to vote; provided, however, that the affirmative vote of a plurality of all
votes cast in person or by proxy by the holders of Series A Preferred Stock
shall be sufficient to elect the Series A Preferred Stock Director. The holders
of Series A Preferred Stock, at any properly called annual or special meeting or
upon a call of a special meeting of holders of Series A Preferred Stock by
holders of not less than 25% of the shares of Series A Preferred Stock then
outstanding, voting separately as a class, may remove the Series A Preferred
Stock Director at any time and from time to time, by the affirmative vote of 80%
of all votes entitled to be cast for the election of the Series A Preferred
Stock Director, and may elect a successor to fill any resulting vacancies for
the remainder of the term of the Series A Preferred Stock Director. If the
Series A Preferred Stock Director shall cease to be a director for any reason
(including death, resignation, removal or any other cause) the vacancy shall be
filled by the vote of the holders of Series A Preferred Stock, voting separately
as a class.
2. Dividends.
(a) Accrual of Dividends Before April 1, 2000. Beginning as of
February 24, 1995 and prior to April 1, 2000, cash dividends at the rate of
$0.325 per share per annum shall accrue on the Series A Preferred Stock (whether
or not earned or declared or payment is legally available therefor) in equal
quarterly installments, commencing on the first day of April, 1995, and
continuing thereafter on the first day of each month of July, October, January
and April and shall accrue interest at the rate of 6.5% per annum (based upon a
365 day year) compounded quarterly on all such unpaid dividend amounts.
(b) Payment of Dividends Before April 1, 2000. Dividends and
interest accrued on or with respect to accrual dates occurring prior to April 1,
2000 shall be payable (either in connection with a redemption of Series A
Preferred Stock or a liquidation payment, or otherwise) prior to April 1, 2000
only upon (i) the dissolution, liquidation or winding up of the Corporation as
herein provided or (ii) the redemption or conversion of Series A Preferred
Stock. If such dividends and interest are not paid on or prior to April 1, 2000
because there has been no liquidation, redemption or conversion on or prior to
April 1, 2000, the amount of all such accrued dividends and interest payments
shall thereafter be an unsecured obligation of the Corporation, payable in equal
quarterly installments over three (3) years and shall bear interest at the rate,
and be payable, as set forth with respect to dividend payments in Subsection
C.2(c) below.
(c) Payment of Dividends Commencing April 1, 2000. Commencing
April 1, 2000, cash dividends shall accrue at a per annum rate equal to 100
basis points over The Wall Street Journal Prime Rate as of the last Business Day
prior to April 1, 2000 on the original issue price of each share of Series A
Preferred Stock outstanding (whether or not such dividends have been earned or
declared by the
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Board), and shall be payable in equal quarterly installments on the first day of
each month of April, July, October and January. All such accrued dividends shall
be declared by the Board and shall be payable to each holder of Series A
Preferred Stock on each scheduled quarterly date if, at the time of payment,
funds for the full payment of such quarterly dividend on all shares of Series A
Preferred Stock then outstanding are legally available therefor under the laws
of the State of Maryland as then in effect.
(d) Right of Set Off Against Dividends, Redemptions,
Liquidation, etc. The Corporation may set off against any amounts due and
payable to any holder of Series A Preferred Stock (including, but not limited
to, any dividend payments, redemption payments, liquidation payments or other
amounts) all or any accrued but unpaid interest on any unpaid principal owed to
the Corporation by any holder, or prior holder, of shares of Series A Preferred
Stock pursuant to the terms of any promissory note(s) delivered by such
holder(s) to the Corporation for the issuance of such shares of Series A
Preferred Stock.
3. Redemption.
(a) Redemptions Initiated by the Corporation.
(i) The Corporation may, out of funds legally available
therefor, after delivery of prior written notice (which may be delivered at any
time commencing on the fifth anniversary of the Issue Date of the Series D
Preferred Stock), redeem all, but not less than all, of the outstanding Series A
Preferred Stock (other than Series A Preferred Stock with respect to which
redemption has been required by the holders thereof pursuant to Subsection
C.3(b) hereof) in exchange for a price equal to the sum of the issue price of
such Series A Preferred Stock plus all accumulated accrued but unpaid dividends
thereon, including accrued but unpaid interest on such dividends, whether or not
such dividends have been declared by the Corporation, through the Series A
Redemption Date, subject to any right of set off of the Corporation under these
Articles.
(ii) As used in this Subsection C.3, the applicable "Series A
Redemption Date" shall be the later of (x) 20 calendar days after delivery of
the redemption notice delivered in accordance with the provisions of this
ARTICLE IV and (y) 10 days after determination of Fair Market Value of the
Series A Preferred Stock to be redeemed pursuant to Subsection C.3(b). On the
applicable Series A Redemption Date, the Corporation shall pay by wire transfer
the redemption price for the shares redeemed hereunder.
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(b) Redemptions Initiated by Holders of Series A
Preferred Stock.
(i) Upon the occurrence of a "Special Redemption Event" as set
forth in Section 12.8 of that certain Financing Transaction Agreement between
the Corporation, the original holder of Series A Preferred Stock and others,
dated as of February 24, 1995, and only so long and to the extent the original
holder of Series A Preferred Stock continues to hold shares of Series A
Preferred Stock, the original holder of Series A Preferred Stock shall have a
period of sixty days from the occurrence of such Special Redemption Event to
request the Corporation to redeem, and the Corporation shall redeem, out of any
funds legally available therefor, all (but not less than all) of the then issued
and outstanding shares of Series A Preferred Stock held thereby, at an amount
per share equal to the sum of the issue price plus all accrued and unpaid
interest and dividends thereon (subject to any right of set off of the
Corporation referred to in Subsection C.2(d) hereof), whether or not such
dividends have actually been declared. The Corporation shall be entitled to
satisfy any redemption obligations owing under this Subsection C.3(b) by
delivering to the original holder of Series A Preferred Stock a promissory note
with a term of 24 full months from the date of such request (collectively, the
"Maturity Date"). Compound interest shall accrue on any such note at the rate of
6.5% per annum. The principal amount of such note shall be amortized ratably on
a 60 month basis. Accrued and unpaid interest shall be payable, together with
equal monthly installments of principal, on the fifth day of each month
following the issuance of such note, with a final payment of all accrued and
unpaid interest plus all remaining unpaid principal due on the Maturity Date.
Such note will be repayable without premium, will be subordinated to all then
existing or thereafter created indebtedness of the Corporation and will contain
certain such customary default and other clauses as are customary in promissory
notes of such type and amount.
(ii) If the Corporation elects to issue any Series A Adverse
Securities (as hereafter defined), then the holders of Series A Preferred Stock
shall be entitled, by delivery of written notice to the Corporation at the
principal office of the Corporation within 90 days after the date of issuance of
such Series A Adverse Securities, to request that the Corporation redeem, and
the Corporation shall redeem, all but not less than all of the issued and
outstanding shares of Series A Preferred Stock held by holders requesting
redemption. Such redemption payment shall be made in cash prior to or
contemporaneously with such issuance if a request for redemption is made 30 or
more days prior to the date specified for issuance by the Corporation in its
notice of issuance, and otherwise no sooner than 180 days after the date of such
request, but in all events within one year of such request. The redemption price
payable to holders of Series A Preferred Stock in connection with the redemption
of shares of such stock pursuant to this clause (ii) shall be an amount per
share equal to the greatest of (A) the purchase price per share of Series A
Adverse Securities to be paid, by the purchaser of such Series A Adverse
Securities, (B) the then Fair Market Value of such share of Series A Preferred
Stock and (C) the product of 1.5 times the sum of the liquidation preference of
such shares of Series A Preferred Stock to the date such shares are actually
redeemed, determined in accordance with the provisions of
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Subsection C.5 hereof. Interest shall accrue at a rate of 6.5% per annum on the
Fair Market Value of the shares of Series A Preferred Stock with respect to
which redemption is sought pursuant to this clause (ii) from the date notice of
such redemption is provided to the Corporation until full payment is made of all
amounts payable pursuant to this clause (ii). As used in this clause (ii), the
term "Series A Adverse Securities" shall mean any capital stock of the
Corporation that is issued to any person or entity that has legitimate business
interests that are materially adverse to the legitimate business interests of
St. Joseph Medical Center, Inc., Towson, Maryland, or its affiliated entities in
the Baltimore, Maryland metropolitan area (a "Series A Adverse Holder")
determined in accordance with the provisions of this clause. The Corporation
shall provide written notice of its intention to issue capital stock to a
purchaser or purchasers other than holders of Series A Preferred Stock at least
30 days prior to such issuance. If the holders of a majority of the then issued
and outstanding shares of Series A Preferred Stock, voting as a single class,
shall have determined by affirmative vote that such purchaser or purchasers are
Series A Adverse Holders, the Corporation shall suspend the sale and issuance of
such Series A Adverse Securities and submit the question as to whether such
purchaser or purchasers are Series A Adverse Holders to arbitration under the
expedited procedures set forth herein. Such arbitration shall be conducted by
three arbitrators, two of whom (the "Party Designated Arbitrators") shall be
selected by the parties, and the third of whom shall be a "neutral Arbitrator"
selected by the Party Designated Arbitrators. The corporation shall designate
its Party Designated Arbitrator by written notice to the holders of Series A
Preferred Stock, and within five days thereafter, such holders of Series A
Preferred Stock shall designate their Party Designated Arbitrator. Within five
days thereafter, the two Party Designated Arbitrators shall agree upon and
appoint a Neutral Arbitrator, who shall be an attorney experienced in the health
care business. The only issue to be determined in the arbitration shall be
whether the proposed purchaser or purchasers of Series A. Junior Securities is a
Series A Adverse Holder. The arbitration shall be concluded within 60 days after
the date of the Corporation's written notice. The determination of the
arbitrators so appointed shall be final and conclusive upon the parties. If the
arbitrators hereunder determine that the proposed purchaser of purchasers are
Series A Adverse Holders (1) the Corporation may nonetheless proceed to issue
such shares to such purchaser or purchasers upon delivery of written notice to
that effect to the holders of Series A Preferred Stock no later than 30 days
prior to the date such issuance is consummated, and (2) the holders of Series A
Preferred Stock shall thereupon become entitled to exercise their rights to
require the Corporation to redeem all, but not less than all, of the issued and
outstanding shares Series A Preferred Stock pursuant to the provisions of this
clause (ii).
(iii) Subject to the provisions of Subsection F.2(e) and
F.3(c) the holder or holders of at least 50% of the outstanding shares of Series
A Preferred Stock may, at their option, at any time, or from time to time, from
and after the fifth anniversary of the Issue Date of the Series D Preferred
Stock require the Corporation to redeem, out of funds legally available
therefor, all of the outstanding shares of Series A Preferred Stock (including
shares not held by such holder or holders). The
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redemption price payable upon any redemption pursuant to this Subsection
C.3(b)(iii) shall be the greater of (x) an amount per share equal to $5.00 plus
accrued but unpaid dividends thereon (including accrued but unpaid interest on
such dividends) and (y) the then Fair Market Value of the redeemed Series A
Preferred Stock.
(c) Redemption of Series A Junior Securities. Notwithstanding
any other provision of these Articles to the contrary and except for Section
IV.D(3)(b), unless and until all of the issued and outstanding Series A
Preferred Stock has been either redeemed or converted in accordance with this
Section C, the Corporation may not and shall not redeem, repurchase or otherwise
make any payment in connection with the acquisition, redemption, repurchase or
cancellation of any Series A Junior Securities or any stock options or similar
rights with respect to any Series A Junior Securities, and the Corporation shall
cause all corporations, partnerships, limited liability companies and other
entities controlled, directly or indirectly, by the Corporation to refrain from
engaging in such transactions.
(d) Special Provisions with Respect to Subscription
Receivables.
(i) If the Corporation elects to defer receipt of all or any
portion of any scheduled payment of principal due and payable to the Corporation
under any promissory note of any holder of Series A Preferred Stock in favor of,
and delivered to, the Corporation in consideration for the issuance by the
Corporation of Series A Preferred Stock to such holder (each, a "Series A
Deferred Payment Amount"), then the Corporation may redeem, in its discretion,
upon at least 30 days prior written notice to the holders of Series A Preferred
Stock as of the Series A Redemption Date set forth in such notice, a number of
shares of Series A Preferred Stock from the maker of such note determined by
dividing the aggregate amount of all then outstanding Series A Deferred Payment
Amounts by $5.00. The redemption price per share payable pursuant to this
Subsection C.3(d) shall be equal to $5.00 for each share so redeemed and shall
be set off against such Series A Deferred Payment Amounts.
(ii) To the extent that shares of Series A Preferred Stock
referred to in Subsection C.3(d)(i) are not converted into shares of Class C
Common Stock pursuant to the provisions of Subsection C.4(a), the Corporation
may redeem the remaining outstanding shares of Series A Preferred Stock upon at
least ten days prior written notice to the holders of Series A Preferred Stock.
The redemption price for such shares shall be equal to the amount of, and shall
be paid by cancellation of, the full unpaid principal amount of the promissory
note, if any, delivered by the holder of such shares to the Corporation in
partial consideration for the purchase and issuance of such shares.
4. Conversion Rights.
(a) In General. Upon the consummation of an IPO, each share of
Series A Preferred Stock shall automatically be converted into shares of Class C
Common Stock at the then effective Series A Conversion Ratio (as determined in
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accordance with the provisions of Paragraph (c) of this Subsection C.4). In
addition, at the option of the holder of any Series A Preferred Stock, such
holder shall have the right, at any time and from time to time prior to the
consummation of an IPO, by written notice to the Corporation, to convert any and
all shares of Series A Preferred Stock owned by such holder into shares of Class
C Common Stock at the then effective Series A Conversion Ratio.
(b) Adjustments to the Series A Conversion Ratio. The
Series A Conversion Ratio shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time or from time to
time after the Issue Date of the Series A Preferred Stock (the "Series A Issue
Date") (A) pay a dividend, or make a distribution, on the outstanding shares of
Common Stock in shares of Common Stock, (B) subdivide the outstanding shares of
Common Stock, (C) combine the outstanding shares of Common Stock into a smaller
number of shares or (D) issue by reclassification of the shares of Common Stock
any shares of capital stock of the Corporation, then, and in each such case, the
Series A Conversion Ratio in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any shares of Series A Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
securities of the Corporation that such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Series A Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (i) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective. No adjustment shall be made pursuant to this clause
(i) in connection with any transaction to which Subsection B.5(k) applies.
(ii) Except with respect to Excluded Securities, in case the
Corporation shall issue shares of Common Stock or Common Stock Equivalents after
the Series A Issue Date at a price per share (or having a conversion, exercise
or exchange price per share) less than the Series A Issue Price (as defined
below) per share of Common Stock as of the date of issuance of such shares or of
such convertible securities, then, and in each such case, the Conversion Ratio
shall be adjusted so that the holder of each share of Series A Preferred Stock
shall be entitled to receive, upon the conversion thereof, the number of shares
of Common Stock determined by multiplying (A) the Series A Conversion Ratio in
effect on the day immediately prior to such date by (B) one plus a fraction, the
numerator of which shall be the amount of the Series D Spread (as defined in
Subsection F.4(b)) and the denominator of which shall be the Series D Issue
Price (as defined in Subsection F.4(c)). An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be
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effective retroactively to the close of business on the date of such issuance.
Upon the expiration of any unexercised Common Stock Equivalents for which an
adjustment has been made pursuant to this clause (ii), the adjustment (and any
subsequent adjustments) shall forthwith be reversed to effect such rate of
conversion as would have been in effect at the time of such expiration or
termination had such Common Stock Equivalents, to the extent outstanding
immediately prior to such expiration or termination, never been issued. No
adjustment shall be made pursuant to this clause (ii) in connection with any
transaction to which Subsection B.4(k) applies.
(c) As used in this Subsection C.4, the term "Series A
Conversion Ratio" means the Conversion Ratio applicable with respect to Series A
Preferred Stock. The Series A Conversion Ratio shall initially equal one and
shall be subject to adjustment as provided in Subsection C.4(b). As used in this
Subsection C.4, the term "Series A Issue Price" means $5.00 per share (subject
to adjustment for stock dividends, stock splits, reclassifications and other
transactions that require an adjustment pursuant to Subsection C.4(b)).
(d) If any event occurs as to which, in the opinion of the
Executive Committee, the provisions of this Subsection C.4 are not strictly
applicable or, if strictly applicable, would not fairly accomplish the intent of
these provisions, the Executive Committee shall make an adjustment in the
application of such provisions, in accordance with such intent, so as to
accomplish such intent.
5. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of the Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, before any
distribution or payment shall be made in respect of the holders of shares of
Series A Junior Securities, a liquidating distribution in an amount equal to the
greater of (i) the Fair Market Value per share of Series A Preferred Stock or
(ii) the sum of $5.00 plus an amount equal to all accrued but unpaid dividends
thereon (including any interest accrued but unpaid with respect to such
dividends) to the date fixed for such distribution or payment; provided,
however, that immediately prior to making any payments pursuant to this
Subsection C.5(a), the Corporation shall redeem the maximum number of shares of
Series A Preferred Stock redeemable pursuant to Subsection B.3(d)(i) to the
effect that upon consummation of such redemption, there shall be no outstanding
Series A Deferred Payment Amount; provided, further, however, that no
liquidating distribution shall be paid in respect of Series A Preferred Stock
unless and until all amounts due to holders of Series A Senior Securities as a
liquidating distribution pursuant to these Articles shall have been fully paid.
(b) If, upon any such liquidation, dissolution or winding up
of the affairs of the Corporation, the assets of the Corporation available for
distributions under this Subsection C.5 shall be insufficient to permit the
payment in full to the holders of Series A Preferred Stock of the amounts to
which they are entitled
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hereunder, then all of such available assets shall be distributed to the holders
of shares of Series A Preferred Stock ratably in proportion to the liquidation
payment otherwise due under Subsection C.5(a) to each such holder, and no
amounts shall be distributed in respect of any class or series of capital stock
of the Corporation ranking junior to the Series A Preferred Stock with respect
to liquidation rights until all amounts distributable to holders of Series A
Preferred Stock hereunder have been distributed.
(c) After the payment to the holders of the Series A Preferred
Stock of the full preferential amounts provided for in this Subsection C.5, the
holders of Series A Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Corporation.
D. SERIES B PREFERRED STOCK.
Series B Preferred Stock shall rank, with respect to dividend
rights, redemption rights and rights on liquidation, winding-up and dissolution
(i) junior to Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock and (ii) senior to all classes of Common Stock and to each other
class or series of capital stock issued by the Corporation or established by the
Board that by its terms is junior to the Series B Preferred Stock ("Series B
Junior Securities").
1. Voting Rights.
(a) General Provisions. Holders of Series B Preferred Stock
shall be entitled to notice of each meeting of all of the Corporation's
stockholders, but shall not be entitled to notice of special or other meetings
of any class of Common Stock or of Series A Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock. The holders of shares of Series B Preferred
Stock shall vote together with the holders of shares of Common Stock and the
remaining Preferred Stock on all matters submitted to a vote of stockholders and
not as a separate series or class, except as otherwise provided herein or
required by law. Except as otherwise provided herein, on all matters to be voted
on by the Corporation's stockholders, every holder of Series B Preferred Stock
shall be entitled to cast, in person or by proxy, that number of votes equal to
the full number of shares of Class C Common Stock into which such holder's
Series B Preferred Stock is then convertible.
(b) Series B Preferred Stock Directors. The holders of shares
of Series B Preferred Stock, voting separately as a class, shall be entitled to
elect one director of the Corporation (the "Series B Preferred Stock Director").
Where the holders of Series B Preferred Stock vote as a class, the affirmative
vote of a majority of the shares of Series B Preferred Stock represented in
person or by proxy at a meeting at which a quorum of Series B Preferred Stock is
present shall be sufficient to approve any matter with respect to which said
holders are entitled to vote; provided, however, that the affirmative vote of a
plurality of all votes cast in person or by proxy by the holders of Series B
Preferred Stock shall be sufficient to elect the Series B Preferred Stock
Director. The holders of Series B Preferred Stock, at any properly
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called annual or special meeting or upon a call of a special meeting of holders
of Series B Preferred Stock by holders of not less than 25% of the shares of
Series B Preferred Stock then outstanding, voting separately as a class, may
remove the Series B Preferred Stock Director at any time and from time to time,
by the affirmative vote of 80% of all votes entitled to be cast for the election
of a Series B Preferred Stock Director, and may elect a successor to fill any
resulting vacancies for the remainder of the term of the Series B Preferred
Stock Director. If the Series B Preferred Stock Director shall cease to be a
director for any reason (including death, resignation, removal or any other
cause) the vacancy shall be filled by the vote of the holders of Series B
Preferred Stock, voting separately as a class.
2. Dividends.
(a) Accrual of Dividends Before April 1, 2000. Beginning as of
December 1, 1995 and prior to April 1, 2000, cash dividends at the rate of $0.90
per share per annum shall accrue on the Series B Preferred Stock (whether or not
earned or declared or payment is legally available therefor) in equal quarterly
installments, commencing on the first day of January 1996, and continuing
thereafter on the first day of each month of April, July, October, January and
shall accrue interest at the rate of 8.0% per annum (based upon a 365 day year)
compounded quarterly on all such unpaid dividend amounts.
(b) Payment of Dividends Before April 1, 2000. Dividends and
interest accrued on or with respect to accrual dates occurring prior to April 1,
2000 shall be payable (either as part of a Series B Redemption Price (as defined
below) or liquidation payment, or otherwise) prior to April 1, 2000 only after
all dividends and interest accrued on or with respect to all other series of
Preferred Stock have been fully paid and only upon (i) the liquidation of the
Corporation as herein provided, or (ii) the redemption or conversion of such
shares of Series B Preferred Stock. If such dividends and interest are not paid
on or prior to April 1, 2000 because there has been no liquidation, redemption
or conversion on or prior to April 1, 2000, the amount of all such accrued
dividends and interest payments shall thereafter be an unsecured obligation of
the Corporation, payable in equal quarterly installments over three (3) years
and shall bear interest at the rate, and be payable, as set forth with respect
to dividend payments in Subsection D.2(c) below.
(c) Payment of Dividends on or After April 1, 2000. Beginning
on April 1, 2000, cash dividends, at a per annum rate equal to 100 basis points
over The Wall Street Journal Prime Rate as of the last business day prior to
April 1, 2000, shall accrue on the original issue price of each share of Series
B Preferred Stock outstanding (whether or not earned or declared by the Board),
and shall be payable in equal quarterly installments on the first day of each
month of April, July, October and January. All such accrued dividends shall be
declared by the Board (if funds are at such time legally available therefor) and
shall be payable to each holder of Series B Preferred Stock on each such
scheduled quarterly date (as set forth above) if, at the time of payment (i) all
dividends and interest accrued on or declared with respect to all
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other series of Preferred Stock have been fully paid, and (ii) funds for the
full payment of such quarterly dividend on all shares of Series B Preferred
Stock then outstanding are legally available therefor under the laws of the
State of Maryland as then in effect.
3. Redemption.
(a) Redemptions Initiated by the Corporation.
(i) The Corporation may, out of funds legally available
therefor, after delivery of prior written notice (which may be delivered at any
time commencing on the fifth anniversary of the Issue Date of the Series D
Preferred Stock), redeem all, but not less than all, of the outstanding Series B
Preferred Stock in exchange for a price equal to the sum of the issue price of
such Series B Preferred Stock plus all accumulated accrued but unpaid dividends
thereon, including accrued but unpaid interest on such dividends, whether or not
such dividends have been declared by the Corporation, through the Series B
Redemption Date, subject to any right of set off of the Corporation under these
Articles.
(ii) As used in this Subsection D.3, the "Series B Redemption
Date" shall be 20 calendar days after delivery of the redemption notice
delivered in accordance with the provisions of this ARTICLE IV. On the
applicable Series B Redemption Date, the Corporation shall pay by wire transfer
the redemption price for the shares redeemed hereunder.
(b) Redemptions Initiated by Holders of Series B
Preferred Stock.
(i) So long as UniversityCare, LLC, the University of Maryland
Medical System, Inc., or any of their affiliates is a holder of record of any
Series B Preferred Stock at the option of such holder (the "Series B Holder"),
the Series B Preferred Stock shall be redeemed, at a price equal to the lower of
Fair Market Value or $11.25 per share, plus accrued but unpaid dividends, in the
event of the adoption or interpretation of any law or regulation under the
Internal Revenue Code of 1986, as amended, that reasonably may be construed as
prohibiting or otherwise materially adversely affecting the tax exempt status of
the University of Maryland Medical System, Inc. or University Physicians, Inc.
("UPI") due to the continued ownership of the Series B Preferred Stock by
UniversityCare. Such repurchase obligation shall be subject to the following:
(A) To be effective, the Series B Holder must
deliver written notice to the Corporation of its election to require redemption
of the Series B Preferred Stock within 30 days after such adoption or
interpretation. Such notice shall be accompanied by an opinion of counsel
reasonably acceptable to the Corporation, confirming the adoption or
interpretation of such law or regulation and the applicability to and effect on
the Series B Holder;
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(B) For a period of thirty days following the
delivery of the opinion described in subsection (A), the Series B Holder shall
use commercially reasonable efforts to sell the Series B Stock to a third party,
which may, but need not include any of the other holders of preferred or common
stock of the Corporation; provided that the term "commercially reasonable" shall
not require the Series B Holder to accept a price lower than $11.25 per share
plus any accrued but unpaid dividends. In the event that the Series B Holder is
unable to find a purchaser acceptable to it and to the Corporation for such
shares within the thirty day period, the Series B Holder shall so notify the
Corporation, and the redemption obligation set forth above shall become
effective, the closing of which redemption shall occur as soon as practicable
following the notification by the Series B Holder of its inability to sell such
shares provided herein.
(ii) If the Corporation elects to issue any Series B Adverse
Securities (as hereafter defined), then the holders of Series B Preferred Stock
shall be entitled, by delivery of written notice to the Corporation at the
principal office of the Corporation within 90 days after the date of issuance of
such Series B Adverse Securities, to request that the Corporation redeem, and
the Corporation shall redeem, all but not less than all of the issued and
outstanding shares of Series B Preferred Stock held by holders requesting
redemption. Such redemption payment shall be made in cash prior to or
contemporaneously with such issuance if a request for redemption is made 30 or
more days prior to the date specified for issuance by the Corporation in its
notice of issuance, and otherwise no sooner than 180 days after the date of such
request, but in all events within one year of such request. The redemption price
payable to holders of Series B Preferred Stock in connection with the redemption
of shares of such stock pursuant to this clause (ii) shall be an amount per
share equal to the greatest of (A) the purchase price per share of Series B
Adverse Securities to be paid, by the purchaser of such Series B Adverse
Securities, (B) the then Fair Market Value of such shares of Series B Preferred
Stock and (C) the product of 1.5 times the sum of the liquidation preference of
such shares of Series B Preferred Stock to the date such shares are actually
redeemed, determined in accordance with the provisions of Subsection D.5 hereof.
Interest shall accrue at a rate of 6.5% per annum on the Fair Market Value of
the shares of Series B Preferred Stock with respect to which redemption is
sought pursuant to this clause (ii) from the date notice of such redemption is
provided to the Corporation until full payment is made of all amount payable
pursuant to this clause (ii). As used in this clause (ii), the term "Series B
Adverse Securities" shall mean (i) a teaching hospital affiliated with a college
or a university, located within the State of Maryland; (ii) a person or entity
which has legitimate business interests that are materially adverse to the
legitimate business interests of University of Maryland Medical System, Inc. or
other affiliated providers of institutional medical services located within the
Baltimore metropolitan area; or (iii) any entity that is controlled by, controls
or is under common control with an entity described in either clauses (i) or
(ii) hereof (a "Series B Adverse Holder") determined in accordance with the
provisions of this clause. The Corporation shall provide written notice of its
intention to issue capital stock to a purchaser or purchasers other than holders
of Series B Preferred Stock at least 30 days prior to such issuance. If the
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holders of a majority of the then issued and outstanding shares of Series B
Preferred Stock, voting as a single class, shall have determined by affirmative
vote that such purchaser or purchasers are Series B Adverse Holders, the
Corporation shall suspend the sale and issuance of such Series B Adverse
Securities and submit the question as to whether such purchaser or purchasers
are Series B Adverse Holders to arbitration under the expedited procedures set
forth herein. Such arbitration shall be conducted by three arbitrators, two of
whom (the "Party Designated Arbitrators") shall be selected by the parties, and
the third of whom shall be a "Neutral Arbitrator" selected by the Party
Designated Arbitrators. The Corporation shall designate its Party Designated
Arbitrator by written notice to the holders of Series B Preferred Stock, and
within five days thereafter, such holders of Series B Preferred Stock shall
designate their Party Designated Arbitrator. Within five days thereafter, the
two Party Designated Arbitrators shall agree upon and appoint a Neutral
Arbitrator, who shall be an attorney experienced in the health care business.
The only issue to be determined in the arbitration shall be whether the proposed
purchaser or purchasers of Series B Adverse Securities is a Series B Adverse
Holder. The arbitration shall be concluded within 60 days after the date of the
Corporation's written notice. The determination of the arbitrators so appointed
shall be final and conclusive upon the parties. If the arbitrators hereunder
determine that the proposed purchaser or purchasers are Series B Adverse
Holders, (1) the Corporation may nonetheless proceed to issue such shares to
such purchaser or purchasers upon delivery of written notice to that effect to
the holders of Series B Preferred Stock no later than 30 days prior to the date
such issuance is consummated, and (2) the holders of Series B Preferred Stock
shall thereupon become entitled to exercise their rights to require the
Corporation to redeem all, but not less than all, of the issued and outstanding
shares Series B Preferred Stock pursuant to the provisions of this clause (ii).
(c) Redemption of Series B Junior Securities. Notwithstanding
any other provision of these Articles to the contrary, unless and until all of
the issued and outstanding Series B Preferred Stock has been either redeemed or
converted in accordance with this Subsection D, the Corporation may not and
shall not redeem, repurchase or otherwise make any payment in connection with
the acquisition, redemption, repurchase or cancellation of any Series B Junior
Securities or any stock options or similar rights with respect to any Series B
Junior Securities, and the Corporation shall cause all corporations,
partnerships, limited liability companies and other entities controlled,
directly or indirectly, by the Corporation to refrain from engaging in such
transactions.
4. Conversion Rights.
(a) In General. Upon the consummation of an IPO, each share of
Series B Preferred Stock shall automatically be converted into shares of Class C
Common Stock at the then effective Series B Conversion Ratio (determined in
accordance with the provisions of Subsection D.4(c)). In addition, at the option
of the holder of any Series B Preferred Stock, such holder shall have the right,
at any time and from time to time prior to the consummation of an IPO, by
written notice to the
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Corporation, to convert any and all shares of Series B Preferred Stock owned by
such holder into shares of Class C Common Stock at the then effective Series B
Conversion Ratio.
(b) Adjustments to the Series B Conversion Ratio. The
Series B Conversion Ratio shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time or from time to
time after the Issue Date of the Series D Preferred Stock (the "Series B
Reference Date") (A) pay a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding
shares of Common Stock, (C) combine the outstanding shares of Common Stock into
a smaller number of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of the Corporation, then, and in each
such case, the Series B Conversion Ratio in effect immediately prior to such
event or the record date therefor, whichever is earlier, shall be adjusted so
that the holder of any shares of Series B Preferred Stock thereafter surrendered
for conversion shall be entitled to receive the number of shares of Common Stock
or other securities of the Corporation that such holder would have owned or have
been entitled to receive after the happening of any of the events described
above, had such shares of Series B Preferred Stock been surrendered for
conversion immediately prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this clause (i)
shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective. No adjustment shall be made pursuant to this clause
(i) in connection with any transaction to which Subsection B.5(k) applies.
(ii) Except with respect to Excluded Securities, in case the
Corporation shall issue shares of Common Stock or Common Stock Equivalents after
the Series B Reference Date at a price per share (or having a conversion,
exercise or exchange price per share) equal to or greater than the Series D
Issue Price (as defined in Subsection F.4(c)) but less than the Series B Issue
Price (as defined below) per share of Common Stock as of the date of issuance of
such shares or of such convertible securities, then, and in each such case, the
Conversion Ratio shall be adjusted so that the holder of each share of Series B
Preferred Stock shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock determined by multiplying (A) the Series B
Conversion Ratio in effect on the day immediately prior to such date by (B) a
fraction, the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding on such date and (2) the number of additional shares of
Common Stock issued or for which the Common Stock Equivalents may convert or be
exercised or exchanged, and the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding on such date and (y) the number of
shares of Common Stock which the aggregate consideration receivable by the
Corporation for the total number of shares of Common Stock issued or for which
the Common Stock Equivalents may convert or be exercised
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or exchanged would purchase at the Series B Issue Price on such date. Except
with respect to Excluded Securities, in case the Corporation shall issue shares
of Common Stock or Common Stock Equivalents after the Series B Reference Date at
a price per share (or having a conversion, exercise or exchange price per share)
less than the Series D Issue Price (as defined in Subsection F.4(c)) and less
than the Series B Issue Price (as defined below) per share of Common Stock as of
the date of issuance of such shares or of such convertible securities, then, and
in each such case, the Conversion Ratio shall be adjusted so that the holder of
each share of Series B Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the Series B Conversion Ratio in effect on the day immediately
prior to such date by (B) one plus a fraction, the numerator of which shall be
the amount of the Series D Spread (as defined in Subsection F.4(b)) and the
denominator of which shall be the Series D Issue Price (as defined in Subsection
F.4(c)). An adjustment made pursuant to this clause (ii) shall be made on the
next Business Day following the date on which any such issuance is made and
shall be effective retroactively to the close of business on the date of such
issuance. Upon the expiration of any unexercised Common Stock Equivalents for
which an adjustment has been made pursuant to this clause (ii), the adjustment
(and any subsequent adjustments) shall forthwith be reversed to effect such rate
of conversion as would have been in effect at the time of such expiration or
termination had such Common Stock Equivalents, to the extent outstanding
immediately prior to such expiration or termination, never been issued. No
adjustment shall be made pursuant to this clause (ii) in connection with any
transaction to which Subsection B.5 (k) applies.
(c) As used in this Subsection D.4, the term "Series B
Conversion Ratio" means the Conversion Ratio applicable with respect to Series B
Preferred Stock. The Series B Conversion Ratio shall initially equal one and
shall be subject to adjustment as provided in Subsection D.4(b). As used in this
Subsection D.4, the term "Series B Issue Price" means $11.25 per share (subject
to adjustment for stock dividends, stock splits, reclassifications and other
transactions that require an adjustment pursuant to Subsection D.4(b)).
(d) If any event occurs as to which, in the opinion of the
Executive Committee, the provisions of this Subsection D.4 are not strictly
applicable or, if strictly applicable, would not fairly accomplish the intent of
these provisions, the Executive Committee shall make an adjustment in the
application of such provisions, in accordance with such intent, so as to
accomplish such intent.
5. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of the Series B Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, before any
distribution or payment shall be made in respect of the holders of shares of
Series B Junior Securities, a liquidating
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distribution in an amount equal to the greater of (i) the Fair Market Value per
share of Series B Preferred Stock or (ii) the sum of $11.25 plus an amount equal
to all accrued but unpaid dividends thereon (including any interest accrued but
unpaid with respect to such dividends) to the date fixed for such distribution
or payment; provided, however, that no liquidating distribution shall be paid in
respect of Series B Preferred Stock unless and until all amounts due to holders
of Series B Senior Securities as a liquidating distribution pursuant to these
Articles shall have been fully paid.
(b) If, upon any such liquidation, dissolution or winding up
of the affairs of the Corporation, the assets of the Corporation available for
distributions under this Subsection D.5 shall be insufficient to permit the
payment in full to the holders of Series B Preferred Stock of the amounts to
which they are entitled hereunder, then all of such available assets shall be
distributed to the holders of shares of Series B Preferred Stock ratably in
proportion to the liquidation payment otherwise due under Subsection D.5(a) to
each such holder, and no amounts shall be distributed in respect of any class or
series of capital stock of the Corporation ranking junior to the Series B
Preferred Stock with respect to liquidation rights until all amounts
distributable to holders of Series B Preferred Stock hereunder have been
distributed.
(c) After the payment to the holders of the Series B Preferred
Stock of the full preferential amounts provided for in this Subsection D.5, the
holders of Series B Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Corporation.
E. SERIES C PREFERRED STOCK.
Series C Preferred Stock shall rank, with respect to dividend
rights, redemption rights and rights on liquidation, winding-up and dissolution
(i) junior to Series D Preferred Stock ("Series C Senior Securities"), (ii) pari
passu to Series A Preferred Stock and (iii) senior to all classes of Common
Stock and Series B Preferred Stock and to each other class or series of capital
stock issued by the Corporation or established by the Board that by its terms is
junior to the Series C Preferred Stock (collectively, "Series C Junior
Securities").
1. Voting Rights.
(a) General Provisions. Holders of Series C Preferred Stock
shall be entitled to notice of each meeting of all of the Corporation's
stockholders, but shall not be entitled to notice of special or other meetings
of any class of Common Stock or of Series A Preferred Stock, Series B Preferred
Stock or Series D Preferred Stock. The holders of shares of Series C Preferred
Stock shall vote together with the holders of shares of Common Stock and the
remaining Preferred Stock on all matters submitted to a vote of stockholders and
not as a separate series or class, except as otherwise provided herein or
required by law. Except as otherwise provided herein, on all matters to be voted
on by the Corporation's stockholders, every holder of Series C Preferred Stock
shall be entitled to cast, in person or by proxy, that number of votes
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equal to the full number of shares of Class C Common Stock into which such
holder's Series C Preferred Stock is then convertible.
(b) Series C Preferred Stock Directors. The holders of shares
of Series C Preferred Stock, voting separately as a class, shall be entitled to
elect two directors of the Corporation (the "Series C Preferred Stock
Directors"). Where the holders of Series C Preferred Stock vote as a class, the
affirmative vote of a majority of the shares of Series C Preferred Stock
represented in person or by proxy at a meeting at which a quorum of Series C
Preferred Stock is present shall be sufficient to approve any matter with
respect to which said holders are entitled to vote; provided, however, that the
affirmative vote of a plurality of all votes cast in person or by proxy by the
holders of Series C Preferred Stock shall be sufficient to elect a Series C
Preferred Stock Director. The holders of Series C Preferred Stock, at any
properly called annual or special meeting or upon a call of a special meeting of
holders of Series C Preferred Stock by holders of not less than 25% of the
shares of Series C Preferred Stock then outstanding, voting separately as a
class, may remove any Series C Preferred Stock Director at any time and from
time to time, by the affirmative vote of 80% of all votes entitled to be cast
for the election of a Series C Preferred Stock Director, and may elect a
successor to fill any resulting vacancies for the remainder of the term of such
Series C Preferred Stock Director. If any Series C Preferred Stock Director
shall cease to be a director for any reason (including death, resignation,
removal or any other cause), the vacancy shall be filled by a vote of the
remaining Series C Preferred Stock Director (unless, with respect to removal,
the holders of Series C Preferred Stock have elected a successor Series C
Preferred Stock Director pursuant to the provisions hereof). If there is no such
remaining director, then upon a call of a special meeting of holders of Series C
Preferred Stock, by any such holder, the vacancy shall be filled by the vote of
the holders of Series C Preferred Stock, voting separately as a class.
2. Dividends.
(a) Accrual of Dividends Before April 1, 2000. Beginning as of
the date shares of Series C Preferred Stock are issued and prior to April 1,
2000, cash dividends shall accrue on shares of Series C Preferred Stock, at the
rate of 8% per annum on the original issue price of each share of Series C
Preferred Stock, beginning on the date of issuance of such shares (whether or
not earned or declared or payment is legally available therefor) and such
dividends, to the extent accrued but unpaid, shall accrue interest at the rate
of 8% per annum (based upon a 365-day year) compounded quarterly on all such
unpaid dividend amounts.
(b) Payment of Dividends Before April 1, 2000. Dividends and
interest accrued on or with respect to accrual dates occurring prior to April 1,
2000 shall be payable (either in connection with a redemption of Series C
Preferred Stock or a liquidation payment, or otherwise) prior to April 1, 2000
only upon (i) the dissolution, liquidation or winding up of the Corporation as
herein provided or (ii) the redemption or conversion of Series C Preferred
Stock. If such dividends and interest are not paid on
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or prior to April 1, 2000 because there has been no liquidation, redemption or
conversion on or prior to April 1, 2000, the amount of all such accrued
dividends and interest payments shall thereafter be an unsecured obligation of
the Corporation payable in equal quarterly installments over three (3) years and
shall bear interest at the rate, and be payable, as set forth with respect to
dividend payments in Subsection E.2(c) below.
(c) Payment of Dividends Commencing April 1, 2000. Commencing
April 1, 2000, cash dividends shall accrue at a per annum rate equal to 100
basis points over The Wall Street Journal Prime Rate as of the last Business Day
prior to April 1, 2000 on the original issue price of each share of Series C
Preferred Stock outstanding (whether or not such dividends have been earned or
declared by the Board), and shall be payable in equal quarterly installments on
the first day of each month of April, July, October and January. All such
accrued dividends shall be declared by the Board and shall be payable to each
holder of Series C Preferred Stock on each scheduled quarterly date if, at the
time of payment, funds for the full payment of such quarterly dividend on all
shares of Series C Preferred Stock then outstanding are legally available
therefor under the laws of the State of Maryland as then in effect.
3. Redemption.
(a) Redemptions Initiated by the Corporation.
(i) The Corporation may, out of funds legally available
therefor, after delivery of prior written notice (which may be delivered at any
time commencing on the fifth anniversary of the Issue Date of the Series D
Preferred Stock), redeem all, but not less than all, of the outstanding Series C
Preferred Stock (other than Series C Preferred Stock with respect to which
redemption has been required by the holders thereof pursuant to Subsection
E.3(b) hereof) in exchange for a price equal to the sum of the issue price of
such Series C Preferred Stock plus all accumulated accrued but unpaid dividends
thereon, including accrued but unpaid interest on such dividends, whether or not
such dividends have been declared by the Corporation, through the Series C
Redemption Date, subject to any right of set off of the Corporation under these
Articles.
(ii) As used in this Subsection E.3, the applicable "Series C
Redemption Date" shall be the later of (x) 20 calendar days after delivery of
the redemption notice delivered in accordance with the provisions of this
ARTICLE IV and (y) 10 days after determination of the Fair Market Value of the
Series C Preferred Stock to be redeemed pursuant to Subsection E.3(b). On the
applicable Series C Redemption Date, the Corporation shall pay by wire transfer
the redemption price for the shares redeemed hereunder.
(b) Redemptions Initiated by Holders of Series C Preferred
Stock. Subject to the provisions of Subsection F.2 (e) and F.3(c), the holder or
holders of at least 50% of the outstanding shares of Series C Preferred Stock
may, at their option,
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at any time, or from time to time, from and after the fifth anniversary of the
Issue Date of the Series D Preferred Stock require the Corporation to redeem,
out of funds legally available therefore, all of the outstanding shares of
Series C Preferred Stock (including shares not held by such holder or holders).
The redemption price payable upon any redemption pursuant to this Subsection
E.3(b) shall be the greater of (x) an amount per share equal to the weighted
average price paid by a holder of Series C Preferred Stock therefor, plus
accrued but unpaid dividends thereon (including accrued but unpaid interest on
such dividends) and (y) the then Fair Market Value of the redeemed Series C
Preferred Stock.
(c) Redemption of Series C Junior Securities. Notwithstanding
any other provision of these Articles to the contrary and except for Section
IV.D(3)(b), unless and until all of the issued and outstanding Series C
Preferred Stock has been either redeemed or converted in accordance with this
Section E, the Corporation may not and shall not redeem, repurchase or otherwise
make any payment in connection with the acquisition, redemption, repurchase or
cancellation of any Series C Junior Securities or any stock options or similar
rights with respect to any Series C Junior Securities, and the Corporation shall
cause all corporations, partnerships, limited liability companies and other
entities controlled, directly or indirectly, by the Corporation to refrain from
engaging in such transactions.
4. Conversion Rights.
(a) In General. Upon the consummation of an IPO, each share of
Series C Preferred Stock shall automatically be converted into shares of Class C
Common Stock at the then effective Series C Conversion Ratio (as determined in
accordance with the provisions of Subsection E.4(c)). In addition, at the option
of the holder of any Series C Preferred Stock, such holder shall have the right,
at any time and from time to time prior to the consummation of an IPO, by
written notice to the Corporation, to convert any and all shares of Series C
Preferred Stock owned by such holder into shares of Class C Common Stock at the
then effective Series C Conversion Ratio.
(b) Adjustments to the Series C Conversion Ratio. The
Series C Conversion Ratio shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time or from time to
time after the Issue Date of the Series D Preferred Stock (the "Series C
Reference Date") (A) pay a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding
shares of Common Stock, (C) combine the outstanding shares of Common Stock into
a smaller number of shares or (D) issue by reclassification shares of Common
Stock any shares of capital stock of the Corporation, then, and in each such
case, the Series C Conversion Ratio in effect immediately prior to such event or
the record date therefor, whichever is earlier, shall be adjusted so that the
holder of any shares of Series C Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock or
other securities of the Corporation that such holder would have
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owned or have been entitled to receive after the happening of any of the events
described above, had such shares of Series C Preferred Stock been surrendered
for conversion immediately prior to the happening of such event or the record
date therefor, whichever is earlier. An adjustment made pursuant to this clause
(i) shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective. No adjustment shall be made pursuant to this clause
(i) in connection with any transaction to which Subsection B.5(k) applies.
(ii) Except with respect to Excluded Securities, in case the
Corporation shall issue shares of Common Stock or Common Stock Equivalents after
the Series C Reference Date at a price per share (or having a conversion,
exercise or exchange price per share) equal to or greater than the Series D
Issue Price (as defined in Subsection F.4(c) but less than the Series C Issue
Price (as defined below) per share of Common Stock as of the date of issuance of
such shares or of such convertible securities, then, and in each such case, the
Conversion Ratio shall be adjusted so that the holder of each share of Series C
Preferred Stock shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock determined by multiplying (A) the Series C
Conversion Ratio in effect on the day immediately prior to such date by (B) a
fraction, the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding on such date and (2) the number of additional shares of
Common Stock issued or for which the Common Stock Equivalents may convert or be
exercised or exchanged, and the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding on such date and (y) the number of
shares of Common Stock which the aggregate consideration receivable by the
Corporation for the total number of shares of Common Stock issued or for which
the Common Stock Equivalents may convert or be exercised or exchanged would
purchase at the Series C Issue Price on such date. Except with respect to
Excluded Securities, in case the Corporation shall issue shares of Common Stock
or Common Stock Equivalents after the Series C Reference Date at a price per
share (or having a conversion, exercise or exchange price per share) less than
the Series D Issue Price (as defined in Subsection F.4(c)) and less than the
Series C Issue Price (as defined below) per share of Common Stock as of the date
of such shares or of such convertible securities, then, and in each such case,
the Conversion Ratio shall be adjusted so that the holder of each share of
Series C Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying (A) the
Series C Conversion Ratio in effect on the day immediately prior to such date by
(b) one plus a fraction, the numerator of which shall be the amount of the
Series D Spread (as defined in Subsection F.4(b)) and the denominator of which
shall be the Series D Issue Price (as defined in Subsection F.4(c)). An
adjustment made pursuant to this clause (ii) shall be made on the next Business
Day following the date on which any such issuance is made and shall be effective
retroactively to the close of business on the date of such issuance. Upon the
expiration of any unexercised Common Stock Equivalents for which an adjustment
has
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been made pursuant to this clause (ii), the adjustment (and any subsequent
adjustments) shall forthwith be reversed to effect such rate of conversion as
would have been in effect at the time of such expiration or termination had such
Common Stock Equivalents, to the extent outstanding immediately prior to such
expiration or termination, never been issued. No adjustment shall be made
pursuant to this clause (ii) in connection with any transaction to which
Subsection B.5(k) applies.
(c) As used in this Subsection E.4, the term "Series C
Conversion Ratio" means the Conversion Ratio applicable with respect to Series C
Preferred Stock. The Series C Conversion Ratio shall initially equal 1.25 and
shall be subject to adjustment as provided in Subsection E.4(b). As used in this
Subsection E.4, the term "Series C Issue Price" means $17.50 per share (subject
to adjustment for stock dividends, stock splits, reclassifications and other
transactions that require an adjustment pursuant to Subsection E.4(b)).
(d) If any event occurs as to which, in the opinion of the
Executive Committee, the provisions of this Subsection E.4 are not strictly
applicable or, if strictly applicable, would not fairly accomplish the intent of
these provisions, the Executive Committee shall make an adjustment in the
application of such provisions, in accordance with such intent, so as to
accomplish such intent.
5. Liquidation Rights.
(a) Upon any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of the Series C Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, before any
distribution or payment shall be made in respect of the holders of shares of
Series C Junior Securities, a liquidating distribution in an amount equal to
$17.50 per share, plus an amount equal to all accrued but unpaid dividends
thereon (including any interests with respect to such dividends) to the date
fixed for such distribution or payment; provided, however, that no liquidating
distribution shall be paid in respect of Series C Preferred Stock unless and
until all amounts due to holders of Series C Senior Securities as a liquidating
distribution pursuant to these Articles shall have been fully paid.
(b) If, upon any such liquidation, dissolution or winding up
of the affairs of the Corporation, the assets of the Corporation available for
distributions under this Subsection E.5 shall be insufficient to permit the
payment in full to the holders of Series C Preferred Stock of the amounts to
which they are entitled hereunder, then all of such available assets shall be
distributed to the holders of shares of Series C Preferred Stock ratably in
proportion to the liquidation payment otherwise due under Subsection E.5(a) to
each such holder, and no amounts shall be distributed in respect of any Series C
Junior Securities with respect to liquidation rights until all amounts
distributable to holders of Series C Preferred Stock hereunder have been
distributed.
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(c) After the payment to the holders of the Series C Preferred
Stock of the full preferential amounts provided for in this Subsection E.5, the
holders of Series C Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Corporation.
F. SERIES D CONVERTIBLE PREFERRED STOCK.
Series D Preferred Stock shall rank, with respect to dividend
rights, redemption right and rights on liquidation, winding-up and dissolution,
senior to all classes of Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock and to each other class or series
of capital stock hereafter issued by the Corporation or established by the Board
(collectively, "Series D Junior Securities").
1. Voting.
(a) General Provisions. Holders of Series D Preferred Stock
shall be entitled to notice of each meeting of all of the Corporation's
stockholders, or any class, subclass, series or subseries thereof. Holders of
Series D Preferred Stock shall vote together with the holders of shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock on all matters submitted to a vote of stockholders and not as a
separate series or class, except as otherwise provided herein. Except as
otherwise provided herein, on all matters to be voted on by the Corporation's
stockholders, every holder of Series D Preferred Stock shall be entitled to
cast, in person or by proxy, that number of votes equal to the full number of
shares of Common Stock into which such holder's Series D Preferred Stock is
convertible, at the record date for the determination of shareholders entitled
to vote on such matters or, if no such record date is established, at the date
such vote is taken or any written consent of shareholders is solicited.
(b) Series D Preferred Directors. Holders of Series D
Preferred Stock, voting as a single class, shall be entitled to elect two
directors of the Corporation (the "Series D Preferred Directors"). Where the
holders of Series D Preferred Stock vote separately as a class, the affirmative
vote of a majority of the shares of Series D Preferred Stock represented in
person or by proxy at a meeting at which a quorum of Series D Preferred Stock is
present shall be sufficient to approve any matter with respect to which said
holders are entitled to vote, including, without limitation election of a Series
D Preferred Director. Holders of Series D Preferred Stock, at any properly
called annual or special meeting or upon a call of a special meeting of holders
of Series D Preferred Stock by holders of not less than 25% of the shares of
Series D Preferred Stock then outstanding, voting separately as a class, may
remove any Series D Preferred Director at any time and from time to time, by the
affirmative vote of 80% of all votes entitled to be cast for the election of a
Series D Preferred Director, and may elect a successor to fill any resulting
vacancies for the remainder of the term of such Series D Preferred Director. If
any Series D Preferred Director shall cease to be a director for any reason
(including death, resignation, removal or any other cause),
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the vacancy shall be filled by the affirmative vote of the remaining Series D
Preferred Director (unless, with respect to removal of a Series D Preferred
Director, the holders of Series D Preferred Stock have elected a successor
Series D Preferred Director pursuant to the provisions hereof). If there is no
such remaining Series D Preferred Director, then upon a call of a special
meeting of holders of Series D Preferred Stock by any such holder, the vacancies
shall be filled by the affirmative vote of the holders of Series D Preferred
Stock, voting separately as a class.
(c) Actions Requiring Written Approval of Certain Holders of
Series D Preferred Stock. Prior to the consummation of a Qualified IPO,
notwithstanding any other provision of these Articles to the contrary, the
Corporation shall not, and shall not permit any of its Subsidiaries to, directly
or indirectly, take any of the following actions without first obtaining the
approval (by vote or written consent) of the holders of at least 51% the then
outstanding shares of Series D Preferred Stock:
(i) consolidate or merge with or into any Person or any
similar business combination transaction (including a sale of all or
substantially all of its assets) or effect any transaction or series of
transactions in which more than 33-1/3% of the Corporation's voting securities
are transferred to another Person, except any such transaction or series of
transactions, as the case may be, involving only wholly-owned Subsidiaries of
the Corporation;
(ii) amend or repeal any provision of, or add any provision
to, these Articles or the Corporation's By-laws or alter or change the
preferences, rights, privileges or powers of the Series D Preferred Stock;
(iii) create or designate, authorize the issuance of, or issue
or sell any new series or class of securities or increase the authorized number
of, authorize the issuance of, or issue (other than in connection with the
exercise of any options or warrants outstanding as of the date hereof to
purchase shares of Common Stock or Preferred Stock, or the conversion of any
Common Stock or Preferred Stock, or the conversion of any Common Stock
outstanding as of the date hereof and other than as required by the terms of any
of the Preferred Stock and the conversion of principal and accrued interest on
the Convertible Subordinated Note issued by the Corporation to Genesis Holdings,
Inc., and dated January 31, 1997), any additional shares of Common Stock or
Preferred Stock;
(iv) increase the number of authorized directors of the
Corporation's Board of Directors above twenty;
(v) voluntarily liquidate, dissolve or wind up the
Corporation or take any action that would result in the liquidation,
dissolution or winding up of the Corporation;
(vi) pay, declare or set aside any sums for the payment of,
any dividends, or make any distributions on, any shares of its capital stock or
other equity
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securities except for accruals as required by the terms of any series of
Preferred Stock and except for dividends on the Series D Preferred Stock
(vii) except for repurchases of shares of the Common Stock
pursuant to Subsection A.5 and redemptions of shares of Series A Preferred Stock
pursuant to Subsection C.3(b) and redemption of Series B Preferred Stock
pursuant to Subsection D.3 (b), redemption of shares of common stock which the
Corporation is obligated to affect in connection with the exercise by a
physician of resale rights under agreements pursuant to which the physician's
practice was acquired by the Corporation; or redeem, purchase or otherwise
acquire, any of its capital stock or other equity securities (including, without
limitation, warrants, options and other rights to acquire any of its capital
stock or other equity securities directly or indirectly) or redeem, purchase or
make any payments with respect to any stock appreciation rights or phantom stock
plans.
(viii) purchase, acquire or obtain any capital stock or other
proprietary interest, directly or indirectly, in any other entity or all or
substantially all of the business or assets of another Person for consideration
(including assumed liabilities) in excess of $750,000;
(ix) enter into or commit to enter any joint ventures or any
partnerships or establish any non wholly-owned subsidiaries, in each case, where
the contributions or proposed investments by the Corporation is in excess of
$750,000 in cash or assets;
(x) sell, lease, transfer or otherwise dispose of any
asset or group of assets, in an aggregate amount (as to the Corporation and all
of its Subsidiaries), for consideration in excess of $750,000;
(xi) create, incur, assume or suffer to exist any indebtedness
of the Corporation or any of its subsidiaries (which shall include for purposes
hereof capitalized lease obligations and guarantees or other contingent
obligations for indebtedness for borrowed money) in an aggregate amount (as to
the Corporation and all of its Subsidiaries) in excess of $750,000 excluding
indebtedness that is outstanding as of the Issue Date of the Series D Preferred
Stock and replacement indebtedness thereof on terms and conditions approved by
the holders of Series D Preferred Stock in accordance with the provisions of
this Subsection F.1(c);
(xii) mortgage, encumber, create, incur or suffer to exist,
liens on its assets, in an aggregate amount (as to the Corporation and all of
its Subsidiaries) in excess of $750,000 excluding liens on assets that exist as
of the date hereof;
(xiii) amend, modify or grant any waiver under any material
provisions of any employment or non-competition agreement to which the
Corporation, any of its affiliates, or any professional corporations or
professional associations with which the Corporation has a contractual
relationship, is a party or is bound; or
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(xiv) adopt or approve the annual budget or business plan
of the Corporation.
2. Dividends.
(a) When and as declared by the Board out of funds legally
available therefor, the Corporation shall pay dividends to the holders of the
Series D Preferred Stock as provided in this Subsection F.2.
(b) Cumulative dividends shall be payable on shares of the
Series D Preferred Stock at an annual rate of $.80 per share of Series D
Preferred Stock payable quarterly in arrears on the first day of every April,
July, October and January, commencing July 1, 1997 (each, a "Payment Date").
Each dividend will be payable to holders of record as they appear on the books
of the Corporation at the close of business on a record date (each a "Series D
Record Date"), not more than 60 nor less than 15 days before each Payment Date.
Dividends shall accrue from and including the Issue Date of the Series D
Preferred Stock and shall be cumulative (whether or not earned or declared).
Dividends payable for any period less than a full dividend period shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. All
dividends shall be payable, at the option of the Corporation, either in
additional shares of Series D Preferred Stock (each, a "Series D Stock
Dividend") as provided in Subsection F.2(c) below or in cash out of funds
legally available therefor. If any Payment Date shall not be a Business Day,
payment shall be made on the next succeeding Business Day. In addition, if, in
any year, any cash or other distributions are declared by the Board to be paid
on Common Stock, or any class or subclass thereof, then an additional dividend
shall be paid at the same time to the holders of Series D Preferred Stock at the
rate per share equal to the product of (i) such per share dividend to be paid on
the Common Stock multiplied by (ii) the number of shares of Common Stock into
which each share of Series D Preferred Stock is then convertible
(c) Series D Stock Dividends shall be payable as follows: in
the event that any dividend shall be payable on Series D Preferred Stock in
additional shares of Series D Preferred Stock pursuant to Subsection F.2(b)
above, each holder of shares of Series D Preferred Stock as of the applicable
Series D Record Date shall be entitled to receive .08 shares of Series D
Preferred Stock per annum for each share of Series D Preferred Stock then held.
(d) All dividends paid hereunder shall be distributed by first
class mail to each holder as of the applicable Series D Record Date of Series D
Preferred Stock at the address of such holder specified in the records of the
Corporation.
(e) No full dividends may be declared or paid, and no funds
may be set apart for the payment of dividends, on any Series D Junior Securities
(other than dividends on Series D Junior Securities paid in additional shares of
Series D Junior
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Securities of the same series or class to the extent required by these Articles)
unless full cumulative dividends to be paid hereunder prior to the date thereof
shall have been paid, and, to the extent payable in cash, paid or set aside for
payment, on the Series D Preferred Stock. No securities of the Corporation other
than Series D Preferred Stock may be repurchased, redeemed or otherwise acquired
nor may funds be set aside for payment with respect thereto, nor shall the
Corporation permit any corporation or entity directly or indirectly controlled
by the Corporation to purchase any securities of the Corporation other than
Series D Preferred Stock, if full cumulative dividends to be paid hereunder
prior to the date thereof have not been paid on the Series D Preferred Stock.
(f) The recipients of any Series D Stock Dividends shall have
the right at any time after the payment thereof, to require the Corporation to
redeem up to 50% of the shares of Series D Preferred Stock received in
connection with such Series D Stock Dividends at a price per share equal to
$10.00 per share of Series D Preferred Stock plus an amount equal to all
accumulated and unpaid dividends thereon. The recipients of any Series D Stock
Dividends shall only exercise their rights to require the Company to redeem
Stock Dividends to the extent such recipient determines in its reasonable good
faith judgment that such redemption is necessary for the Series D Preferred
Stockholders or their investors to pay taxes with respect to such Stock
Dividends. Redemptions made pursuant to this Subsection F.2(f) shall be
consummated not later than 20 calendar days after delivery of a redemption
notice from the holder requiring such redemption, and on such redemption date
the Corporation shall wire transfer to each holder the redemption price for the
shares of Series D Preferred Stock so redeemed.
3. Redemption.
(a) Redemptions Initiated by the Corporation. The
Corporation may not require the redemption of any shares of Series D
Preferred Stock.
(b) Redemptions Initiated by Holders of Series D
Preferred Stock.
(i) The holder or holders of at least 66-2/3% of the
outstanding shares of Series D Preferred Stock may, at their option, at any
time, or from time to time, from and after the fifth anniversary of the Issue
Date of the Series D Preferred Stock, require the Corporation to redeem, out of
funds legally available therefor, all of the outstanding shares of Series D
Preferred Stock (including shares not held by such holder or holders). The
redemption price payable upon any redemption pursuant to this Subsection
F.3(b)(i) shall be the greater of (x) an amount per share equal to $10.00 per
share of Series D Preferred Stock plus accrued but unpaid dividends thereon and
(y) the Fair Market Value of the shares of Series D Preferred Stock redeemed
pursuant to this Subsection F.3(b)(i). The date of any redemption required to be
made pursuant to this Subsection F.3(b)(i) shall be 20 calendar days after
delivery of the redemption notice, and on such redemption date the Corporation
shall
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wire transfer to each holder the redemption price for the shares of Series D
Preferred Stock so redeemed.
(ii) Prior to a Qualified IPO, (i)if any action or
recommendation taken by the Executive Committee (as defined in ARTICLE V) is
overruled, rescinded, amended or otherwise contravened, avoided or negated by
the Board or (ii) the Board elects not to conduct the management of the Company
in accordance with Article V.2 of these Articles (including the creation and
empowerment of the Executive Committee), the holders of at least 66-2/3% of the
outstanding shares of Series D Preferred Stock may, at their option, at any time
within 60 days after such action by the Board, by written notice (a "Special
Redemption Notice") to the Corporation require the Corporation to redeem, out of
funds legally available, all of the shares of Series D Preferred Stock held by
such holders; provided, however, that if, within ten Business Days following
receipt of a Special Redemption Notice, the Board rescinds, amends, avoids or
negates its prior decision to overrule, rescind, amend or otherwise contravene,
avoid or negate an action or recommendation taken by the Executive Committee,
the circumstances giving rise to such Special Redemption Notice shall be deemed
to have been withdrawn and shall have no further effect and the Corporation
shall have no further obligation to redeem any shares of Series D Preferred
Stock pursuant to such Special Redemption Notice. The redemption price payable
upon any redemption pursuant to this clause (ii) shall be the greater of (x) an
amount per share equal to $10.00 per share of Series D Preferred Stock plus an
amount equal to cumulative dividends calculated at a rate of 15% per annum
accruing from the Issue Date of the Series D Preferred Stock, and (y) the Fair
Market Value of the shares of Series D Preferred Stock redeemed pursuant to this
clause (ii). The Corporation shall use its best efforts to consummate any
redemption being made pursuant to this clause (ii) as soon as possible but in
any event not later than six months after the date of a Special Redemption
Notice. The Corporation shall pay the redemption price with respect to the
shares of Series D Preferred Stock redeemed pursuant to this clause (ii) by bank
wire transfer to the holders of such shares.
(c) Redemption of Series D Junior Securities. Notwithstanding
any other provision of these Articles to the contrary and except for Sections
IV.C(3)(b)(i) and (ii) and IV.D(3)(b)(i) and (ii) and unless and until all of
the issued and outstanding Series D Preferred Stock has been either redeemed or
converted in accordance with this Section F, the Corporation may not and shall
not redeem, repurchase or otherwise make any payment in connection with the
acquisition, redemption, repurchase or cancellation of any Series D Junior
Securities or any stock options or similar rights with respect to any Series D
Junior Securities, and the Corporation shall cause all corporations,
partnerships, limited liability companies and other entities controlled,
directly or indirectly, by the Corporation to refrain from engaging in such
transactions.
4. Conversion.
(a) In General. Upon the consummation of a Qualified IPO, each
share of Series D Preferred Stock shall automatically be converted into shares
of
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Class C Common Stock at the then effective Series D Conversion Ratio. In
addition, at the option of the holder of any Series D Preferred Stock, such
holder shall have the right, at any time and from time to time prior to the
consummation of a Qualified IPO, by written notice to the Corporation, to
convert any and all shares of Series D Preferred Stock owned by such holder into
shares of Class C Common Stock at the then effective Series D Conversion Ratio.
(b) Adjustments to the Series D Conversion Ratio. The
Series D Conversion Ratio shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time or from time to
time after the Issue Date of the Series D Preferred Stock (A) pay a dividend, or
make a distribution, on the outstanding shares of Common Stock in shares of
Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine
the outstanding shares of Common Stock into a smaller number of shares or (D)
issue by reclassification of the shares of Common Stock any shares of capital
stock of the Corporation, then, and in each such case, the Series D Conversion
Ratio in effect immediately prior to such event or the record date therefor,
whichever is earlier, shall be adjusted so that the holder of any shares of
Series D Preferred Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock or other securities of the
Corporation that such holder would have owned or have been entitled to receive
after the happening of any of the events described above, had such shares of
Series D Preferred Stock been surrendered for conversion immediately prior to
the happening of such event or the record date therefor, whichever is earlier.
An adjustment made pursuant to this clause (i) shall become effective (x) in the
case of any such dividend or distribution, immediately after the close of
business on the record date for the determination of holders of shares of Common
Stock entitled to receive such dividend or distribution, or (y) in the case of
such subdivision, reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective. No adjustment shall
be made pursuant to this clause (i) in connection with any transaction to which
Subsection B.5(k) applies.
(ii) Except with respect to Excluded Securities, in case the
Corporation shall issue shares of Common Stock or Common Stock Equivalents after
the Issue Date of the Series D Preferred Stock at a price per share (or having a
conversion, exercise or exchange price per share) less than the Series D Issue
Price per share of Common Stock as of the date of issuance of such shares or of
such convertible securities (the amount of such difference being referred to as
the "Series D Spread"), then, and in each such case, the Series D Conversion
Ratio shall be adjusted so that the holder of each share of Series D Preferred
Stock shall be entitled to receive, upon the Conversion thereof, the number of
shares of Common Stock determined by multiplying (A) the Series D Conversion
Ratio in effect on the day immediately prior to such date by (B) one plus a
fraction, the numerator of which shall be the amount of the Series D Spread and
the denominator of which shall be the Series D Issue Price (as defined below).
An adjustment made pursuant to this clause (ii) shall be made on the next
Business Day following the date on which any such
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issuance is made and shall be effective retroactively to the close of business
on the date of such issuance. Upon the expiration of any unexercised Common
Stock Equivalents for which an adjustment has been made pursuant to this clause
(ii), the adjustment (and any subsequent adjustments) shall forthwith be
reversed to effect such rate of conversion as would have been in effect at the
time of such expiration or termination had such Common Stock Equivalents, to the
extent outstanding immediately prior to such expiration or termination, never
been issued. No adjustment shall be made pursuant to this clause (ii) in
connection with any transaction to which Subsection B.5(k) applies.
(iii) In case the Corporation shall at any time, or from time
to time, after the Series D Issue Date declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of stock or
other securities or property or rights or warrants to subscribe for securities
of the Corporation or any of its Subsidiaries by way of dividend or spinoff), on
Common Stock, other than dividends or distributions on Common Stock that are
referred to in clause (i) of this Subsection F.4(b), then, and in each such
case, the Series D Conversion Ratio shall be adjusted so that the holder of each
share of Series D Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable Series D Conversion Ratio on the day immediately
prior to the record date fixed for the determination of stockholders entitled to
receive such dividend or distribution by (B) a fraction, the numerator of which
shall be the Current Market Price per share of Common Stock as of such date, and
the denominator of which shall be such Current Market Price per share of Common
Stock less the Fair Market Value per share of Common Stock of such dividend or
distribution. No adjustment shall be made pursuant to this clause (iii) in
connection with any transaction to which Subsection B.5(k) applies.
(iv) The Series D Conversion Ratio shall be adjusted up or
down based on the ability of the Corporation to achieve certain performance
benchmarks with respect to the Corporation's Medicare Enrollees and Medical Loss
Ratio (each as defined in the letter from the Corporation to the holder of the
Series D Preferred Stock dated as of July 15, 1997). Adjustments to the Series D
Conversion Ratio shall be made pursuant to this clause (iv) on or before the
date the Corporation files its Annual Report on Form 10-K for the fiscal year
ended June 30, 1998, and the Corporation shall provide immediate written notice
thereof to the holders of Series D Preferred Stock.
(v) In case the Corporation shall consummate an IPO of its
Common Stock prior to June 30, 1998 at a price per share (prior to deducting
underwriting discounts and commissions and offering expenses) less than $13.00
(such price being referred to herein as the "IPO Price"), the Series D
Conversion Ratio shall be adjusted upward, but not downward, simultaneously with
the consummation of such IPO to the effect that immediately after such
adjustment each share of Series D Preferred Stock would be convertible into the
number of shares of Common Stock (including fractional shares) equal to the
number of shares of Common Stock into which each share of
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Series D Preferred Stock would be convertible immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be $13.00 and
the denominator of which shall be the IPO Price.
(c) As used in this Subsection F.4, the term "Series D
Conversion Ratio" means the Conversion Ratio applicable with respect to Series D
Preferred Stock. The Series D Conversion Ratio shall initially equal one and
shall be subject to adjustment as provided in Subsection F.4(b). As used in this
Subsection F.4, the term "Series D Issue Price" means $10.00 per share (subject
to adjustment for stock dividends, stock splits, reclassifications and other
transactions that require an adjustment pursuant to Paragraph (b) of Subsection
F.4).
(d) If any event occurs as to which, in the opinion of the
Executive Committee (including the Series D Preferred Directors), the provisions
of this Subsection F.4 are not strictly applicable or, if strictly applicable,
would not fairly accomplish the intent of these provisions, the Executive
Committee (including the Series D Preferred Directors) shall make an adjustment
in the application of such provisions, in accordance with such intent, so as to
accomplish such intent.
5. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series D Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, before any payment or distribution
shall be made on any Series D Junior Securities, an amount equal to the greater
of (i) the Fair Market Value per share of Series D Preferred Stock plus accrued
but unpaid dividends thereon and (ii) $10.00 per share of Series D Preferred
Stock plus an amount equal to accrued but unpaid dividends on such shares of
Series D Preferred Stock and, thereafter, shall be entitled to share in amounts,
if any, distributed to holders of Common Stock upon liquidation as though the
Series D Preferred Stock had been converted to Common Stock immediately prior to
liquidation.
(b) After the payment to the holders of the Series D Preferred
Stock of the full preferential amounts provided for in this Subsection F.5, the
holders of Series D Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Corporation.
ARTICLE V
BOARD OF DIRECTORS
1. NUMBER. The Corporation shall have 20 directors. Six of
such directors shall be Class A Common Directors, eight shall be Class B Common
Directors, one shall be a Series A Preferred Director, one shall be a Series B
Preferred Director, two shall be Series C Preferred Directors, and two shall be
Series D Preferred Directors. The number of directors, in the aggregate and by
class and
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series, shall not be increased or decreased except as provided herein. The
Corporation shall have (a) one Converted Series A Class C Common Director only
upon conversion of all shares of Series A Preferred Stock into shares of Class C
Common Stock as otherwise provided herein, (b) one Converted Series B Class C
Common Director only upon conversion of all shares of Series B Preferred Stock
into shares of Class C Common Stock as otherwise provided herein, (c) two
Converted Series C Class C Common Directors only upon conversion of all shares
of Series C Preferred Stock into shares of Class C Common Stock as otherwise
provided herein and (d) two Converted Series D Class C Common Directors only
upon conversion of all shares of Series D Preferred Stock into shares of Class C
Common Stock as otherwise provided herein. Upon conversion of all shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock into shares of Class C Common Stock as otherwise
provided herein, the Series A Preferred Directors, the Series B Preferred
Director, the Series C Preferred Directors and the Series D Preferred Directors
who are duly elected and qualify as of the time of such conversion shall be and
become, respectively, the Converted Series A Class C Common Director, the
Converted Series B Class C Common Director, the Converted Series C Class C
Common Directors and the Converted Series D Class C Common Directors, who shall
serve until their successors are duly chosen and qualify. Except as otherwise
provided herein, the number of directors, and the number of directors that may
be elected by the holders of each of the Class A Common Stock, the Class B
Common Stock, the Converted Series A Class C Common Stock, the Converted Series
B Class C Common Stock, the Converted Series C Class C Common Stock, the
Converted Series D Class C Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock may be changed only by an amendment to the Articles approved by
the vote of stockholders entitled to vote at least two-thirds of the shares of
the Class A Common Stock, the Class B Common Stock, the Converted Series A Class
C Common Stock, the Converted Series B Class C Common Stock, the Converted
Series C Class C Common Stock, the Converted Series D Class C Common Stock, the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock or the Series D Preferred Stock, as the case may be, voting as a
sub-class.
2. EXECUTIVE COMMITTEE. Except with respect to matters
requiring approval by the entire Board and which may not be delegated to a
committee of the Board under the MGCL ("Reserved Matters"), the authority of the
Board to act on all matters shall be vested in and exercised by an executive
committee of the Board (the "Executive Committee"). With respect to Reserved
Matters, the Board shall only act after receiving a recommendation of the
Executive Committee in connection therewith and to the extent permitted by the
MGCL shall act in accordance with such recommendation. The Executive Committee
shall be comprised of two Series D Preferred Directors, one Series C Preferred
Director selected by the Series C Preferred Directors, two Class B Common
Directors selected by the Class B Common Directors and both of whom shall be
physicians, the Chief Executive Officer of the Corporation, and one director who
is (a) a physician and (b) nominated by the Chief Executive Officer of the
Corporation and approved by the majority vote of the Class B Common
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Directors. Except as provided in Section 3 below, each member of the Executive
Committee shall be entitled to one vote with respect to all matters that come
before the Executive Committee. Action of the Executive Committee shall require
the affirmative vote, or written consent in lieu of a vote, of members who, in
the aggregate, have a majority of the aggregate votes that may be cast by
members of the Executive Committee.
3. WEIGHTED VOTING. If for either two consecutive fiscal
quarters or three fiscal quarters out of five consecutive fiscal quarters the
Corporation (a) fails to record positive net income as reflected on the
Corporation's financial statements prepared by the Corporation's "Big Six"
accounting firm and (b) has a Medicare Medical Loss Ratio with respect to the
Corporation's Medicare Enrollees of at least 90%, then each Series D Preferred
Director shall thereafter have ten votes with respect to all matters requiring
Board or Executive Committee approval or action. Any such determination shall be
made in accordance with the provisions of the Medicare Medical Loss Ratio Letter
dated July 15, 1997, and the weighted voting provisions of this Section shall be
effective at the time the Corporation files its quarterly report on Form 10-Q
(or its annual report on Form 10-K if the Loss Quarter is the last quarter of
the Corporation's fiscal year) with the Securities and Exchange Commission for
the applicable quarter. The Secretary of the Corporation shall provide written
notice to each director of the Corporation of the occurrence of circumstances
giving effect to the provisions of this Section 3 as promptly as practicable
following final determination thereof.
4. CONFLICT OF INTEREST. No contract or other transaction
between the Corporation and any other corporation, partnership, individual or
other entity and no act of the Corporation shall in any way be affected or
invalidated by the fact that any of the directors of the Corporation are
directors, principals, partners or officers of such other entity, or are
peculiarly or otherwise interested in such contract, transaction or act;
provided that (i) the existence of such relationship or such interest shall be
disclosed to the Board or to a committee of the Board if the matter involves a
committee decision, and the contract, transaction or act shall be authorized,
approved or ratified by a majority of disinterested directors on the Board or on
such committee, as the case may be, even if the number of disinterested
directors constitutes less than a quorum, or (ii) the contract, transaction or
act shall be authorized, ratified or approved in any other manner provided by
the MGCL.
5. BOARD AUTHORIZATION OF STOCK ISSUANCE. Subject to such
rights and restrictions as may be granted to, and benefit, the Class A Common
Stock, Class B Common Stock, Class C Common Stock, the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock hereunder, the Board is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class or series,
whether now or hereafter authorized, and securities convertible into shares of
its stock, of any class of classes, whether now or hereafter authorized, for
such consideration as the Board may deem advisable.
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6. CLASSIFICATION OF STOCK. Subject to such rights and
restrictions as may be granted to, and benefit, the Class A Common Stock, the
Class B Common Stock, the Class C Common Stock, the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock hereunder, until such time, if any, as all Common Stock is
automatically converted to Class A Common Stock pursuant to Article IV, Section
A.4 hereto, the Board shall have the power to classify or reclassify any
unissued stock (including but not limited to authorized but unissued shares of
Preferred Stock), whether now or hereafter authorized, by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such stock. Upon any such classification or reclassification, the Board shall
cause the Corporation to file articles supplementary with the Maryland State
Department of Assessments and Taxation, containing such provisions, if any, as
may at such time be required by the MGCL.
7. CONFLICT OF INTEREST. No contract or other transaction
between the Corporation and any other corporation, partnership, individual or
other entity and no act of the Corporation shall in any way be affected or
invalidated by the fact that any of the directors of the Corporation are
directors, principals, partners or officers of such other entity, or are
pecuniarily or otherwise interested in such contract, transaction or act;
provided that (i) the existence of such relationship or such interest shall be
disclosed to the Board or to a committee of the Board if the matter involves a
committee decision, and the contract, transaction or act shall be authorized,
approved or ratified by a majority of disinterested directors on the Board or on
such committee, as the case may be, even if the number of disinterested
directors constitutes less than a quorum, or (ii) the contract, transaction or
act shall be authorized, ratified or approved in any other manner provided by
the MGCL.
ARTICLE VI
PROVISIONS CONCERNING CERTAIN RIGHTS OF THE CORPORATION
AND THE SHAREHOLDERS
1. RIGHT TO AMEND CHARTER. Subject to the provisions and
limitations contained in ARTICLE IV hereof and the MGCL, the Corporation shall
have the right to make, from time to time, any amendments of its charter that
may now or hereafter be authorized by law.
2. ADDITIONAL ISSUANCES; PREEMPTIVE RIGHTS. No holder of any
of the outstanding capital stock of the Corporation shall be entitled to
preemptive rights to subscribe for, purchase or receive any part of any new or
additional issuance of capital stock of Corporation or securities convertible
into capital stock of the Corporation.
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3. INAPPLICABILITY OF THE MARYLAND CONTROL SHARE AND BUSINESS
COMBINATION STATUTES. The Corporation elects not to be governed by Subtitle 6 of
Title 3 of the MGCL with respect to any "business combination" as defined in
such Subtitle, and any acquisition of any shares of stock of the Corporation,
including any acquisition of voting rights or other interests in any such stock,
shall be exempt from the provisions of Title 3, Subtitle 7 of the MGCL.
Accordingly, the provisions of Title 3, Subtitle 6 (Business Combination) and
Subtitle 7 (Control Share) of the MGCL shall not apply to this Corporation.
4. CONSENT. Where the consent or approval of any stockholder
or Director of the Corporation is required hereunder, such consent or
approval may be given or withheld in such stockholder's or Director's sole
discretion.
ARTICLE VII
INDEMNIFICATION AND LIMITATION OF LIABILITY
1. MANDATORY INDEMNIFICATION. To the maximum extent
permitted by the MGCL, as from time to time amended, the Corporation shall
indemnify its currently acting and its former directors and officers against
any and all liabilities and expenses incurred in connection with their services
in such capacities.
2. DISCRETIONARY INDEMNIFICATION. If approved by the Board,
the Corporation may indemnify its officers, employees, agents and persons who
serve and have served, at its request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture or other
enterprise as may be determined by the Board.
3. ADVANCING EXPENSES PRIOR TO A DECISION. The Corporation
shall advance expenses to its directors and officers entitled to mandatory
indemnification to the maximum extent permitted by the MGCL and may in the
discretion of the Board advance expenses to officers, employees, agents and
others who may be granted indemnification.
4. OTHER PROVISIONS FOR INDEMNIFICATION. The Board may, by
resolution or agreement, make further provision for indemnification of
directors, officers, employees and agents of the Corporation.
5. LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS. To the
maximum extent that limitations on the liability of directors and officers are
permitted by the MGCL, as from time to time amended, no director or officer of
the Corporation shall have any liability to the Corporation or its stockholders
for money damages. This limitation on liability applies to events occurring at
the time a person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding in which
liability is asserted.
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6. EFFECT OF AMENDMENT OR REPEAL. No amendment or repeal of
this ARTICLE VII, or the adoption of any provision of the Corporation's charter
inconsistent with this ARTICLE VII, shall apply to or affect in any respect the
liability of any director or officer of the Corporation with respect to any
alleged act or omission which occurred prior to such amendment, repeal or
adoption.
SECOND: The Board of Directors of the Corporation, by
unanimous resolution filed with the minutes of proceedings of the Board by
unanimous consent in lieu of meeting dated May 28, 1997, adopted a resolution
declaring that the amendments to, and restatement of, the Corporation's Articles
of Incorporation as set forth here in were advisable, approved the amendment and
restatement of the Corporation's Articles of Incorporation as hereinabove set
forth, and directed that the foregoing be submitted for action thereon by the
stockholders.
THIRD: The stockholders of the Corporation, at a duly called
meeting held on June 17, 1997, approved the amendment and restatement of the
Corporation's Articles of Incorporation as hereinabove set forth.
FOURTH: (a) The total number of shares of all classes of
stock of the Corporation heretofore authorized, and the number and par value
of the shares of each class were as follows:
Sixty-Three Million Six Hundred and Five Thousand
Five Hundred and Fifty-Six (63,605,556) shares of capital stock, consisting of
Twenty Million Seven Hundred Thousand (20,700,000) shares of Class A Common
Stock, having par value of One Cent ($0.01) per share, Ten Million (10,000,000)
shares of Class B Common Stock, having a par value of One Cent ($0.01) per
share, Twenty-Nine Million Fifty Thousand (29,050,000) shares of Class C Common
Stock, having a par value of One Cent ($0.01) per share, One Million (1,000,000)
shares of Series A Convertible Preferred Stock, having a par value of Five
Dollars ($5.00) per share, Three Hundred Fifty-Five Thousand Five Hundred
Fifty-Six (355,556) shares of Series B Convertible Preferred Stock, having a par
value of Eleven Dollars and Twenty-Five Cents ($11.25) per share, One Million,
Five Hundred Thousand (1,500,000) shares of Series C Convertible Preferred
Stock, having a par value of Fourteen Dollars ($14.00) per share, and One
Million (1,000,000) shares of Preferred Stock, having a par value of One Cent
($0.01) per share.
(b) The total number of shares of all
classes of stock of the Corporation as increased, and the number and par
value of the shares of each class are as follows:
Sixty-eight Million Four Hundred Thirty-Seven
Eight Hundred Thirty-Three shares of capital stock, consisting of Twenty
Million Seven Hundred Thousand (20,700,000) shares of Class A Common Stock,
having par value of $0.01 per share, Ten Million (10,000,000) shares of Class B
Common Stock, having par value of $0.01 per share, Twenty-Nine Million Fifty
Thousand (29,050,000) shares of
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Class C Common Stock, having par value of $0.01 per share, One Million
(1,000,000) shares of Series A Convertible Preferred Stock, having par value of
$5.00 per share, Four Hundred Thirty-Eight Thousand Sixty Eight (438,068) shares
of Series B Convertible Preferred Stock, having par value of $11.25 per share,
One Million Five Hundred Thousand (1,500,000) shares of Series C Convertible
Preferred Stock, having par value $17.50 per share, and Five Million Seven
Hundred Fifty Thousand (5,750,000) shares of Series D Convertible Preferred
Stock, having par value of $10.00 per share.
The aggregate par value of all shares of all classes of stock of the
Corporation heretofore authorized was Thirty Million Six Hundred Seven Thousand
Five Hundred Five Dollars ($30,607,505). The aggregate par value of all shares
of all classes of stock having a par value, as amended by this Amendment, is
Ninety-Four Million Two Hundred Seventy-Five Thousand Seven Hundred Sixty-Five
Dollars ($94,275,765). This amendment increases the aggregate par value of all
shares of all classes of stock of the Corporation.
FIFTH: A description, as amended, of each class of stock which
the Corporation is authorized to issue, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions or redemption, is set forth in Article
FIRST above.
SIXTH: The names of the directors of the Corporation
currently in office are: (a) Class A Common Directors: Scott Rifkin, M.D.,
Alan Kimmel, M.D., Paul Serini, John Dwyer and Stewart Gold; (b) Class B
Common Directors: J. David Nagel, M.D., Richard Diamond, M.D., Peter
LoPresti, D.O., Robert Graw, M.D., Mark Eig, M.D., Alexander Rocha, M.D.,
William Lamm, M.D. and Robert Ancona, M.D.; (c) Series A Preferred Directors:
John Prout and John Ellis; (d) Series B Preferred Director: Robert Zetzer; and
(e) Series C Preferred Directors: Richard Howard.
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment and Restatement to be executed in its name and on its behalf by its
President and attested by its Secretary on the 15th day of July, 1997.
The undersigned acknowledges these Articles of Amendment and
Restatement to be the act of the Corporation, and states, under penalties for
perjury, that the matters and facts set forth herein with respect to
authorization and approval thereof are true in all material respects, to the
best of his knowledge, information and belief.
ATTEST: DOCTORS HEALTH SYSTEM, INC.
By: /s/ Paul A. Serini By: /s/ Stewart B. Gold
____________________________ _____________________________
Paul A. Serini, Secretary Stewart B. Gold, President
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Exhibit 3.2
DOCTORS HEALTH, INC.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117
July 15, 1997
The Beacon Group III - Focus Value Fund, L.P.
c/o The Beacon Group
399 Park Avenue
New York 10022
Ladies and Gentlemen:
Reference is made to Article IV, Section F.4(b)(iv) of the Restated
Articles of Incorporation of Doctors Health, Inc. (the "Restated Articles"). The
adjustment to the conversion ratio of the Series D Convertible Preferred Stock
(the "Series D Preferred") of Doctors Health, Inc. (the "Company") referred to
in such Article shall be made based on the matrix attached as Exhibit A hereto
at the time referred to in such Article. This letter sets forth our agreement as
to the manner in which such matrix shall be applied.
Reference is also made to Article V, Section 3 of the Restated Articles
of the Company. The terms "Medicare Medical Loss Ratio" and "Medicare Enrollees"
set forth in this letter agreement shall apply to Article IV, Section F.4(b)(iv)
and Article V, Section 3 of the Restated Articles.
It is acknowledged and agreed that the provisions of this letter are
for the benefit of all holders of the Series D Preferred, including, but not
limited to, The Beacon Group III - Focus Value Fund, L.P. ("Beacon").
1. The term "Medicare Enrollees" means those persons enrolled under one
of the Company's Medicare global risk service agreements with health maintenance
organizations or other payors ("HMOs").
2. The term "Medicare Medical Loss Ratio" means, with respect to any
quarter or fiscal year (a "Period"), the number obtained by dividing:
(A) the sum of (i) all direct medical expenses paid by the
Company during the Period on behalf of Medicare Enrollees plus (ii) all payments
for specific stop-loss insurance (net of recoveries) applicable to such Period
plus (iii) all reserves
<PAGE>
as of the end of such Period, including those related to incurred but not
recognized medical services ("Medical Management IBNR") any additional
reserves established by the Company's management, calculated as set forth
herein ("IBNR") for services covered by the payments referred to in clause (i)
less (iv) IBNR reserves at the beginning of the Period; by
(B) all Medicare capitation revenues recognized by the Company
from HMOs during the Period under generally accepted accounting principles
("GAAP").
3. For purposes of calculating the Medical Loss Ratio, IBNR shall be
computed at the beginning and end of all Periods on a consistent basis and in
the manner described in the Company's "Medical Loss Ratio/IBNR Methodology"
attached as Exhibit B hereto. Assumptions or estimates used at the end of a
Period shall be consistent with those used at the beginning of the Period
(except for changes required due to changes in actual experience during the
Period or forseeable changes in the Company's contracts or fee arrangements).
Reversals of excess reserves at the beginning of a Period will only be included
in the Medical Loss Ratio calculation pursuant to this letter agreement to the
extent that the reserve that remains after such a reversal is consistent with
the Company's methodology for maintaining such reserves at the end of the
period, but in no event will such a reserve be less than an amount equal to 110%
of the Company's Medical Management IBNR. The Company shall provide the holder
of the Series D Preferred Stock a certificate of the Company's Chief Financial
Officer (the "Excess Reserve Certificate") setting from the percentage of the
Company's IBNR consisting of excess reserves. The Company shall deliver the
Excess Reserve Certificate as soon as practicable after the date of this letter,
and in any event no later than the date the Company issues its annual report on
Form 10-K for the fiscal year ended June 30, 1997.
4. (a) For purposes of the adjustment referred to in
Article IV, Section F.4(b)(iv) of the Restated Articles, as promptly as
practicable after the end of the Company's fiscal year ended June 30, 1998,
and in any event no later than the date the Company files its annual report
on Form 10-K for the fiscal year ended June 30, 1998 with the U.S.
Securities and Exchange Commission, the Company shall provide to each holder
of the Series D Preferred a certificate of the Company's Chief Financial
Officer (the "CFO Certificate") setting forth (i) the Company's Medical
Loss Ratio for the fiscal year ended June 30, 1998 and the methodology, in
reasonable detail, used for such calculation and (ii) the number of Medicare
Enrollees at June 30, 1998.
(b) For purposes of the provisions of Article V, Section 3 of
the Restated Articles, as promptly as practicable after the end of any Company
fiscal quarter for which the Company failed to have positive net income as
reflected on the Company's financial statements for such quarter provided by the
Company to Beacon pursuant to the terms of the Shareholders' Agreement (a "Loss
Quarter"), within 45 days after the end of the Loss Quarter but in any event not
later than the date the Company files its quarterly report on Form 10-Q with the
U.S. Securities and
2
<PAGE>
Exchange Commission (or Form 10-K if the Loss Quarter is the last quarter of the
Company's fiscal year), the Company shall provide to each holder of the
Series D Preferred Stock a CFO Certificate setting forth the Company's
Medical Loss Ratio for the Loss Quarter. The Company's independent auditors,
which shall be a "Big Six" accounting firm (the "Company's Auditors"), shall
perform certain review procedures with respect to the Medical Loss Ratio
reported by the Company for any such Loss Quarter contemporaneous with the
issuance of the Company's Form 10-Q ( or 10-K as applicable) and advise the
Company of such accounting firm's review procedures and report whether the
Company complied with the provisions of Exhibit B attached hereto.
5. In the event the Company has two consecutive Loss Quarters or three
Loss Quarters out of five consecutive quarters, the Company shall, at the
Company's expenses, engage the Company's Auditors to audit and issue its audit
with respect to the Company's financial statements and the CFO Certificate for
each of the Loss Quarters. Such audit shall be commenced as soon as practicable
following the last day of the second consecutive Loss Quarter or the last day of
the third Loss Quarter out of five consecutive quarters.
6. In the event that (i) the Company has two consecutive Loss Quarters
or three Loss Quarters out of five consecutive quarters and (ii) the Company has
received an audit by the Company's Auditors or, for purposes of Article IV,
Section F.4(b)(iv) of the Restated Articles, the Company has filed its annual
report on Form 10-K, Beacon shall be entitled to have each such financial
statement and CFO Certificate audited by its various advisors using any
methodologies it deems appropriate and Beacon agrees that it will use its best
efforts to ensure that such audit is completed within 45 days following delivery
of such statement to it. If Beacon's audit of such statement and the data set
forth therein cannot be reconciled by agreement between Beacon and the Company
within 10 days following the end of such 45-day period, each of us hereby agrees
to submit the matter to an independent arbitrator, who shall be a partner in a
"Big Six" accounting firm other than the Company's Auditors who has professional
expertise with such matters and who is acceptable to both of us (the
"Arbitrator"). If the parties are unable to agree on the identity of such
arbitrator within five days after the end of the 10-day period, either party
shall have the right to ask the President of the American Arbitration
Association to select the Arbitrator. The Arbitrator shall examine (i) the
statement and CFO Certificate prepared by us and the supporting documentation
provided therewith and (ii) the results of the audit prepared by Beacon's
advisors and the supporting analyses provided therewith. Not later than 30 days
following submission of such matters to the Arbitrator, the Arbitrator shall
deliver to each of us his written report setting forth his determination of
Medical Loss Ratio and Medicare Enrollees for the period and the supporting
calculations therefore. Such report shall be final and binding and shall be used
for the purposes of calculating the adjustments to the conversion ratio
applicable to the Series D Preferred as provided in Article IV, Section
F.4(b)(iv) of the Restated Articles and/or to effect the provisions of Article
V, Section 3 of the Restated Articles, as applicable. The fees and expenses of
any Arbitrator shall be born by the Company.
3
<PAGE>
Please indicate your assent to the foregoing by executing this letter
where indicated below.
DOCTORS HEALTH, INC.
By: /s/ John R. Dwyer, Jr.
______________________________
Name: John R. Dwyer, Jr.
Title: Chief Financial Officer
Accepted and Agreed to:
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, L.L.C.
By: Focus Value GP, Inc.
By: /s/ Eric R. Wilkinson
______________________________
Name: Eric R. Wilkinson
Title: Managing Director
4
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Medicare Enrollees at June 30, 1998
Fiscal Year 1998 28,000 or 27,999 to 22,499 to 18,999 to 16,999 to
Medicare Medical Loss --------- --------- --------- --------- ---------
Ratio more 23,500 19,000 17,000 15,000
--------------------- ---- ------ ------ ------ ------
<S><C>
Less than 72.5% $11.00 $10.50 $10.00 $9.00 $8.00
72.5% to 76.99% $10.00 $9.50 $9.00 $8.00 $7.00
77% to 79.99% $9.00 $8.50 $8.00 $7.00 $6.00
80% to 81.99% $8.00 $7.50 $7.00 $6.00 $5.50
82% to 83.99% $7.00 $6.50 $6.00 $5.50 $5.50
84% or higher $6.00 $5.50 $5.50 $5.50 $5.50
</TABLE>
Note: The conversion ratio of the Series D Preferred Stock
shall be adjusted by dividing the Series D Issue Price by the
applicable dollar figure shown in the matrix and
multiplying such result by the then applicable Series D
Conversion Ratio.
<PAGE>
EXHIBIT B
Medical Loss Ratio/IBNR Methodology
The Company is required by Generally Accepted Accounting
Principles (GAAP) to estimate a reserve for incurred but not reported services
(IBNR) in order to match the incurred expenses with the revenues recognized in
its financial statements. Various method(s) are used by HMO's and other managed
care providers to calculate the IBNR in accordance with GAAP. The Company has
determined that given its limited amount of historical experience and its
tightly managed population, that pricing all authorized services per the
MedAdvice Medical Management System (MedAdvice) will be its primary methodology
to determine IBNR in accordance with GAAP.
The methodology derives all authorized units of service (days,
specialist visits, home health visits, etc.) from MedAdvice and prices the units
of service at the expected cost. The prices for the units of service are based
on the best estimate of the health care price per unit (contracted fee schedule
amounts, contracted per diem rates, average historical cost, etc.). In addition,
estimates are made for large cases (up to the stop-loss attachment point),
emergency services which were not authorized until after the event and
authorized services not yet incurred. From time to time and as changes in the
Company's patient pools, medical expense experience and contracts may indicate,
the Company may increase or decrease the reserve created pursuant to the
foregoing MedAdvice cost estimating methodology. The Company will perform
periodic "lookback" tests to validate the methodology and assumptions and make
revisions, as necessary.
The Company reserves the right to take guidance from any other
methodology that complies with generally accepted accounting principles and the
Company's reporting requirements established by the Securities and Exchange
Commission.
Exhibit 3.3
AGREEMENT
This Agreement is entered into this 15th day of July, 1997, in connection with
the purchase by The Beacon Group III - Focus Value Fund, L.P. ("Beacon") of
3,000,000 shares of Doctors Health, Inc. (the "Company") Series D Preferred
Stock (the "Series D Preferred Stock") and related amendments and modifications
to existing rights and obligations of the Company's shareholders and managers
(the "Transaction").
The current documents relating to the Transaction (the "Transaction Documents")
incorporate a certain "MLR Side Letter" that adjusts the "Conversion Price" of
the Series D Preferred Stock at the end of FY 1998, if and to the extent the
Company achieves, or fails to achieve, certain benchmarks.
It has come to the attention of Beacon that:
1) the Finance Committee of the United States Senate completed its
Medicare budget proposals during the week of June 16, 1997 , and the House
Commerce Committee of the United States House of Representatives passed its
version of Medicare budget proposals on June 11, 1997,
2) Congress intends to have a final bill for the President's signature
by August 1, 1997, and
3) the Senate version contains changes to the Medicare's managed care
payment methodology that would reduce payments for new Medicare HMO enrollees by
5% below the current 95% of historic reimbursement level in the enrollee's first
year of enrollment, and then adjust the reimbursement for each of the 4 years
thereafter (the "Proposed Senate Risk Adjustment").
Beacon and the Company believe that while passage as law of the Proposed Senate
Risk Adjustment provisions, or substantially similar provisions that reduce
payments to Medicare HMOs for enrollees below the current 95% of historic
reimbursement level, is not likely, the risk that the Proposed Senate Risk
Adjustment, or substantially similar provisions, is a risk fairly borne by the
Company and not by Beacon.
The Company and Beacon therefore wish amend, and hereby amend, the Transaction
Documents to provide that if the Proposed Senate Risk Adjustment provisions (or
substantially similar provisions that reduce payments to Medicare HMOs for
enrollees below the current 95% of historic reimbursement) are passed as law
during the 105th Congress of the United States and such reduced payments become
effective during FY 1998, and are applicable to the Company's reimbursement,
then Exhibit A to the MLR Letter will be replaced by the "Revised Exhibit A"
attached as Exhibit A.
<PAGE>
The foregoing obligations of the Company to replace Exhibit A of the MLR Letter
with the Revised MLR Letter are subject to ratification and adoption by the
Company's Executive Committee and/or Board of Directors as soon as practicable
after closing, but in no event later than July 31, 1997. To this end, each of
Stewart Gold, Paul Serini and John Dwyer agree to use his best efforts to cause
the Executive Committee of Board to ratify and approve the Revised MLR Letter,
and hereby unconditionally, jointly and severally, agree to hold Beacon harmless
from and against any loss, costs (including reasonable attorneys fees) or
damages incurred by Beacon as a result of the Executive and/or the Board failing
to so ratify and adopt.
DOCTORS HEALTH SYSTEM, INC.
By: /s/ Stewart B. Gold
________________________________
Name: Stewart B. Gold
Title: President and
Chief Executive Officer
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, L.L.C.
By: Focus Value GP, Inc.
By: /s/ Eric R. Wilkinson
________________________________
Eric R. Wilkinson
Managing Director
/s/ Stewart B. Gold
____________________________________
Stewart B. Gold
/s/ Paul A. Serini
____________________________________
Paul A. Serini
/s/ John R. Dwyer
____________________________________
John R. Dwyer
<PAGE>
DOCTORS HEALTH, INC. EXHIBIT A
Reset Mechanism
- - - --------------------------------------------------------------------------------
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Medicare Enrollees (as of 6/30/98)
--------------------------------------------------------------------------------------------
greater
Average Medicare than
MLR for FY98 28,000 27,999 to 23,500 23,499 to 19,000 18,999 to 17,000 16,999 to 15,000
------------ ------- ---------------- ---------------- ---------------- ----------------
Price Price Price Price Price
--------------------------------------------------------------------------------------------
<S> <C>
less than 72.5% $ 11.00 $10.50 $10.00 $9.00 $8.00
72.5% to 76.9% $ 10.00 $ 9.50 $ 9.00 $8.00 $7.00
77.0% to 79.9% $ 9.00 $ 8.50 $ 8.00 $7.00 $6.00
80.0% to 81.9% $ 8.00 $ 7.50 $ 7.00 $6.00 $5.00
82.0% to 83.9% $ 7.00 $ 6.50 $ 6.00 $5.00 $4.00
84.0% to 84.9% $ 6.00 $ 5.50 $ 5.00 $4.00 $4.00
85.0% to 85.9% $ 5.00 $ 4.50 $ 4.00 $4.00 $4.00
greater than 86.0% $ 4.00 $ 4.00 $ 4.00 $4.00 $4.00
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit 3.4
AMENDED AND RESTATED BYLAWS
OF
DOCTORS HEALTH, INC.
ARTICLE I.
Stockholders
Section 1. Annual Meetings.
The annual meeting of the stockholders of the Corporation
shall be held on such date within the month of November as may be fixed from
time to time by the Board of Directors. Not less than ten nor more than 90 days'
written or printed notice stating the place, day and hour of each annual meeting
shall be given in the manner provided in Section 1 of Article IX hereof. The
business to be transacted at the annual meetings shall include the election of
directors, consideration and action upon the reports of officers and directors,
and any other business within the power of the Corporation. All annual meetings
shall be general meetings at which any business may be considered without being
specified as a purpose in the notice unless otherwise required by law.
Section 2. Special Meetings Called by Chairman of the Board, President or Board
of Directors.
At any time in the interval between annual meetings, special
meetings of stockholders may be called by the Chairman of the Board, or by the
President and Chief Executive Officer, or by the Board of Directors. Not less
than ten days' nor more than 90 days' written notice stating the place, day and
hour of such meeting and the matters proposed to be acted on thereat shall be
given in the manner provided in Section 1 of Article IX. No business shall be
transacted at any special meeting except that specified in the notice.
Section 3. Special Meeting Called by Stockholders.
Upon the request in writing delivered to the Secretary by the
stockholders entitled to cast at least two-thirds of all the votes entitled to
be cast at the meeting, it shall be the duty of the Secretary to call forthwith
a special
<PAGE>
meeting of all of the stockholders. Upon the request in writing delivered to the
Secretary and to the holders of the Class, the holders of at least twenty-five
(25%) of the shares of any Class may call a special meeting to vote on such
matters as may properly be considered by such Class of stockholder, voting as a
Class. Such request shall state the purpose of such meeting and the matters
proposed to be acted on thereat, and no other business shall be transacted at
any such special meeting. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing the notice of the meeting,
and upon payment to the Corporation of such costs, the Secretary shall give not
less than ten nor more than 90 days' notice of the time, place and purpose of
the meeting in the manner provided in Section 1 of Article IX. If, upon payment
of such costs the Secretary shall fail to issue a call for such meeting within
ten days after the receipt of such payment (unless such failure is excused by
law), then the stockholders entitled to cast two-thirds or more of the
outstanding shares entitled to vote may do so upon giving not less than ten
days' nor more than 90 days' notice of the time, place and purpose of the
meeting in the manner provided in Section 1 of Article IX.
Section 4. Place of Meetings.
All meetings of stockholders shall be held at the principal
office of the Corporation in the State of Maryland or at such other place within
the United States as may be fixed from time to time by the Board of Directors
and designated in the notice.
Section 5. Quorum.
At any meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum. In the absence of a quorum, the stockholders present in
person or by proxy, by majority vote and without notice other than by
announcement, may adjourn the meeting from time to time, but not for a period
exceeding 120 days until a quorum shall attend.
Section 6. Adjourned Meetings.
A meeting of stockholders convened on the date for which it
was called (including one adjourned to achieve a quorum as above provided in
Section 5 of this Article) may be adjourned from time to time without further
notice to a date not more than 120 days after the record date, and any business
may be transacted at any adjourned meeting which could have been transacted at
the meeting as originally called.
2
<PAGE>
Section 7. Voting.
A majority of the votes cast at a meeting of stockholders,
duly called and at which a quorum is present, shall be sufficient to take or
authorize action upon any other matter which may properly come before the
meeting, unless otherwise required by statute, by the Articles or Amendment
Restatement or the Shareholders' and Voting Agreement. The Board of Directors
may fix the record date for the determination of stockholders entitled to vote
in the manner provided in Article VIII, Section 3 of these Bylaws. Unless
otherwise provided in the Charter, each outstanding share of stock, regardless
of class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of stockholders.
Section 8. Proxies.
A stockholder may vote the shares owned of record either in
person or by proxy. The proxy shall be in writing and shall be signed by the
stockholder or by the stockholder's duly authorized attorney-in-fact or be in
such other form as may be permitted by the Maryland General Corporation Law,
including documents conveyed by electronic transmission. A copy, facsimile
transmission or other reproduction of the writing or transmission may be
substituted for the original writing or transmission for any purpose for which
the original transmission could be used. Every proxy shall be dated, but need
not be sealed, witnessed or acknowledged. No proxy shall be valid after 11
months from its date, unless otherwise provided in the proxy. In the case of
stock held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy without the joinder of the co-owner(s) or co-fiduciary(ies),
unless the Secretary of the Corporation is notified in writing by any co-owner
or co-fiduciary that the joinder of more than one is to be required. At all
meetings of stockholders, the proxies shall be filed with and verified by the
Secretary of the Corporation, or, if the meeting shall so decide, by the
Secretary of the meeting.
Section 9. Order of Business.
At all meetings of stockholders, any stockholder present and
entitled to vote in person or by proxy shall be entitled to require, by written
request to the Chairman of the meeting, that the order of business shall be as
follows:
(1) Organization
(2) Proof of notice of meeting or of waivers thereof. (The
certificate of the Secretary of the Corporation, or the affidavit of any other
person
3
<PAGE>
who mailed or published the notice or caused the same to be mailed or published,
shall be proof of service of notice.)
(3) Submission by Secretary of the Corporation of a
list of the stockholders entitled to vote, present in person or by proxy.
(4) A reading of unapproved minutes of preceding meetings
and action thereon.
(5) Reports.
(6) If an annual meeting, or a special meeting called
for that purpose, the election of directors.
(7) Unfinished business.
(8) New business.
(9) Adjournment.
Section 10. Informal Action by Stockholders
Any action required or permitted to be taken at any meeting of
stockholders may be taken without a meeting if a consent in writing setting
forth such action is signed by all the stockholders entitled to vote thereon and
such consent is filed with the records of stockholders' meetings.
ARTICLE II.
Directors
Section 1. Powers.
The business and affairs of the Corporation shall be managed
under the direction of its Board of Directors. All powers of the Corporation may
be exercised by or under the authority of the Board of Directors except as
conferred on or reserved to the stockholders by law, by the Charter or by these
Bylaws. A director need not be a stockholder. The Board of Directors shall keep
minutes of its meetings and full and fair accounts of its transactions.
4
<PAGE>
Section 2. Number; Term of Office; Removal.
The number of directors of the Corporation shall be twenty
(20); such number may not be increased or decreased by vote of the Board of
Directors. The first directors of the Corporation shall hold their office until
the first annual meeting of the Corporation, or until their successors are
elected and qualify, and thereafter the directors shall hold office for the term
of one year, or until their successors are elected and qualify. A director may
be removed from office as provided in Article I, Section 10 of these Bylaws.
Section 3. Annual Meeting; Regular Meetings.
As soon as practicable after each annual meeting of
stockholders, the Board of Directors shall meet for the purpose of organization
and the transaction of other business. No notice of the annual meeting of the
Board of Directors need be given if it is held immediately following the annual
meeting of stockholders and at the same place. Other regular meetings of the
Board of Directors may be held at such times and at such places, within or
without the State of Maryland, as shall be designated in the notice for such
meeting by the party making the call. The Board shall hold regular meetings on
at least a quarterly basis. All annual and regular meetings shall be general
meetings, and any business may be transacted thereat. At each annual, regular
and special meeting of the Board of Directors or Executive Committee, so long as
The Beacon Group III - Focus Value Fund, L.P ("Beacon") holds more that 5% or
more of the Company's stock, Beacon shall be entitled to invite up to two (2)
non-Director designees to attend such meetings as observers (the "Beacon
Observers"). The Beacon Observers shall be entitled to participate in
discussions and consult with, and make proposals and furnish advice to, the
Board or the Executive Committee, as the case may be, but shall not have the
right to vote on any matters.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by
(i) the Chairman of the Board, (ii) the President and Chief Executive Officer,
(iii) any Class of Directors, in each case by majority vote of the directors of
such Class, (iv) a majority of all directors, or (v) a Beacon Designee or Beacon
Director (as defined in the Shareholders' and Voting Agreement dated as of July
___, 1997), so long as Beacon meets or exceeds the Pre-IPO Threshold or Post-IPO
Threshold (as defined in the Shareholders' and Voting Agreement), as applicable.
Any Beacon Observer may request the Chairman of the Board or the Chief Executive
Officer of the Company to call a meeting of the Board of Directors and, upon
such request, the Chairman of the Board or Chief Executive
5
<PAGE>
Officer, as the case may be, shall call a meeting of the Board as soon as is
practicable after such request.
Section 5. Quorum; Voting.
A majority of the Board of Directors shall constitute a quorum
for the transaction of business at every meeting of the Board of Directors; but,
if at any meeting there be less than a quorum present, a majority of those
present may adjourn the meeting from time to time, but not for a period
exceeding ten days at any one time or 60 days in all, without notice other than
by announcement at the meeting, until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally called.
Except as hereinafter provided or as otherwise provided by the Charter or by
law, directors shall act by a vote of a majority of those members in attendance
at a meeting at which a quorum is present, and, in the case of directors of a
class voting as a Class, a majority of the directors of such Class.
Section 6. Notice of Meetings.
Notice of the time and place of every regular and special
meeting of the Board of Directors or of any committee thereof shall be given to
each director and each Beacon Observer in the manner provided in Section 2 of
Article IX hereof. Subsequent to each Board and committee meeting, and as soon
as practicable thereafter, each director shall be furnished with a copy of the
minutes of said meeting. At least 24 hours' notice shall be given of all
meetings except for a meeting which is held immediately following the annual
meeting of stockholders, which requires no advance notice. The purpose of any
meeting of the Board of Directors or of any committee thereof need not be stated
in the notice.
Section 7. Vacancies.
(a) If the office of a director becomes vacant for any reason
other than an increase in the size of the Board, such vacancy shall be filled in
accordance with the provisions of the Articles of Amendment and Restatementmay
be filled by the Board by a vote of a majority of the directors then in office
who are of the same Class as the director with respect to which such vacancy has
occurred, although such majority is less than a quorum of the Board.
(b) If the vacancy occurs as a result of an increase in the
number of directors, it may be filled by the affirmative vote of at least 80% of
the Board of Directors holding office immediately prior to the increase.
6
<PAGE>
(c) If the offices of the entire Board of Directors shall
become vacant, any stockholder may call a special stockholders meeting in the
same manner that the Chairman of the Board or the President and Chief Executive
Officer may call such meeting, and directors may be elected at such special
meeting in the manner provided for their election at annual meetings.
(d) A director elected by the Board of Directors or by a
particular Class of directors to fill a vacancy shall serve until the next
annual meeting of stockholders and until a successor is elected and qualifies as
herein provided. A director elected by the stockholders or by holders of a
particular Class of Stock to fill a vacancy shall serve for the unexpired term
and until a successor is elected and qualifies.
Section 8. Rules and Regulations.
The Board of Directors may adopt such rules and regulations
for the conduct of its meetings and the management of the affairs of the
Corporation as it may deem proper and not inconsistent with the laws of the
State of Maryland, these Bylaws and the Charter.
Section 9. Executive Committee.
The Board of Directors shall create an Executive Committee as
provided in the Articles of Amendment and Restatement and the Shareholders' and
Voting Agreement. The Executive Committee shall hold formal meetings and keep
minutes of all of its proceedings. A copy of such minutes shall, after approval
by the members of the Committee, be sent to all directors as a matter of
information. Any action taken by the Executive Committee within the limits
permitted by law shall have the force and effect of Board action unless and
until revised or altered by the Board. The presence of a majority of the
Committee from time to time shall be necessary to constitute a quorum. Action by
the Executive Committee shall require the affirmative vote of at least a
majority of the aggregate votes of the members of the Executive Committee.
Action may also be taken without a meeting if a unanimous written consent is
signed by all of the members of the Committee and if such consent is filed with
the records of the Committee. The President and Chief Executive Officer of the
Corporation shall serve as the Committee's Chairman, unless the Executive
Committee shall have designated a different Chairman.
Section 10. Committees
The Board of Directors may, from time to time, by majority
vote, create such other committees as it deems advisable, which committees shall
7
<PAGE>
have and may exercise such powers of the Board as may be designated by the
Board, subject to the requirements of the Maryland General Corporation Law.
Subject to the following sentence, [and except with regard to the executive
committee as provided in Section 9] the members that will serve on the various
committees shall be designated by the Chief Executive Officer of the Company and
shall be approved by a majority of the Board of Directors. To the extent
requested by Beacon and so long as Beacon meets or exceeds the Pre-IPO Threshold
or Post-IPO Threshold (as defined in the Shareholders' and Voting Agreement), as
applicable, the Company shall take all actions necessary to cause at least one
Beacon Director or Beacon Designee (as defined in the Shareholders' and Voting
Agreement) to be appointed to each committee of the Board.
Section 11. Compensation.
A director may receive a stated salary or an attendance fee
for each meeting of the Board of Directors or any committee thereof attended,
plus reimbursement of reasonable expenses of attendance. The amount of the
salary or attendance fee and any entitlement to reimbursement of expenses shall
be determined by resolution of the Board; provided, however, that nothing herein
contained shall be construed as precluding a director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. Place of Meetings.
Regular or special meetings of the Board or any committee
thereof may be held within or without the State of Maryland, as the Board or
such committee may from time to time determine. The time and place of meeting
may be fixed by the party calling the meeting.
Section 13. Informal Action by the Directors.
Any action required or permitted to be taken at any meeting of
the Board or any committee thereof may be taken without a meeting, if a written
consent to such action is signed by all members of the Board or such committee,
as the case may be, and such consent is filed with the minutes of the Board or
such committee, as the case may be.
Section 14. Telephone Conference.
Members of the Board of Directors or any committee thereof may
participate in a meeting of the Board or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear, and be heard by, each other at
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the same time. Participation by such means shall constitute presence in person
at the meeting.
9
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ARTICLE III.
Officers
Section 1. In General.
The Executive Committee shall choose a Chairman of the Board
from among the Directors who hold Class A Common Stock, subject to the approval
of the Board of Directors. If there is no Directors who hold Class A Common
Stock then the Executive Committee and Board shall select a Chairman from among
all the members of the Board of Directors. Any director serving as Chairman of
the Board must be an actively practicing primary care physician authorized to
practice medicine in one or more states, and must never have had his or her
license limited or suspended by action of any regulatory body.
The Board of Directors shall elect a President and Chief
Executive Officer, a Treasurer, a Secretary, and may elect one or more Vice
Presidents, Assistant Secretaries and Assistant Treasurers as the Board may from
time to time deem appropriate. All officers shall hold office only during the
pleasure of the Board or until their successors are chosen and qualify. Any two
of the above offices, except those of President and Vice President, may be held
by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity when such instrument is required to be
executed, acknowledged or verified by any two or more officers. The Board of
Directors may from time to time appoint such other agents and employees with
such powers and duties as the Board may deem proper. In its discretion, the
Board of Directors may leave unfilled any offices except those of President and
Chief Executive Officer, Treasurer and Secretary.
Section 2. Chairman of the Board.
The Chairman of the Board shall assist the Board and other
officers of the Corporation in conceiving policies and procedures, all as
determined and/or authorized by the Board, shall serve as a company spokesperson
and industry representative, and shall preside over the meetings of the Board
and of the stockholders if present at the meeting.
Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer shall have the
responsibility for the implementation of the policies determined by the Board
and the active management of the business and general supervision and direction
of all of the affairs of the Corporation. In the absence of the Chairman of the
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Board, the President and Chief Executive Officer shall preside over the meetings
of the Board and of the stockholders if present at the meeting, and shall
perform such other duties as may be assigned by the Board of Directors or the
Executive Committee. The President and Chief Executive Officer shall serve as
Chairman of the Executive Committee and shall have the authority on the
Corporation's behalf to endorse securities owned by the Corporation and to
execute any documents requiring the signature of an executive officer. The
President and Chief Executive Officer shall perform such other duties as the
Board of Directors may direct`.
Section 4. Vice Presidents.
The Vice Presidents, in the order of priority designated by
these Bylaws or the Board of Directors, shall be vested with all the power and
may perform all the duties of the President and Chief Executive Officer in the
latter's absence. They may perform such other duties as may be prescribed by the
Board of Directors, the Executive Committee or the President and Chief Executive
Officer. The Corporation shall establish the positions of Executive Vice
President and Director of Medical Affairs, Executive Vice President and Director
of Development, Executive Vice President and Director of Strategic Development
and Legal Affairs, Executive Vice President and Director of Finance, and such
other Executive Vice President classifications as it deems appropriate. Unless
the Board designates another officer, the Executive Vice President and Director
of Finance shall be the Chief Financial Officer of the Corporation. The
Executive Vice President and Director of Medical Affairs must be a primary care
physician authorized to practice medicine in one or more states, and must never
have had his or her license limited or suspended by action of any regulatory
body.
Section 5. Treasurer.
The Treasurer shall have general supervision over the
Corporation's finances, and shall perform such other duties as may be assigned
by the Board of Directors or the President and Chief Executive Officer. Unless
there exists an Executive Vice President and Director of Finance, or the Board
designates another officer, the Treasurer shall be the Chief Financial Officer
of the Corporation. If required by resolution of the Board, the Treasurer shall
furnish a bond (which may be a blanket bond) with such surety and in such
penalty for the faithful performance of duty as the Board of Directors may from
time to time require, the cost of such bond to be paid by the Corporation.
Section 6. Secretary.
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The Secretary shall keep the minutes of the meetings of the
stockholders and of the Board of Directors and shall attend to the giving and
serving of all notices of the Corporation required by law or these Bylaws. The
Secretary shall maintain at all times in the principal office of the Corporation
at least one copy of the Bylaws with all amendments to date, and shall make the
same, together with the minutes of the meeting of the stockholders, the annual
statement of affairs of the Corporation and any voting trust or other
stockholders agreement on file at the office of the Corporation, available for
inspection by any officer, director or stockholder during reasonable business
hours. The Secretary shall perform such other duties as may be assigned by the
Board of Directors or the President and Chief Executive Officer.
Section 7. Assistant Treasurer and Assistant Secretary.
The Board of Directors may designate from time to time
Assistant Treasurers and Assistant Secretaries, who shall perform such duties as
may from time to time be assigned to them by the Board of Directors or the
President and Chief Executive Officer.
Section 8. Compensation; Removal; Vacancies.
The Board of Directors shall have power to fix the
compensation of all officers of the Corporation. It may authorize any committee
or officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers. The Board of
Directors shall have the power, upon the affirmative vote of two-thirds (2/3) of
all members of the Board of Directors, at any regular or special meeting to
remove any officer if, in the judgment of the Board, the best interests of the
Corporation will be served by such removal. The Board of Directors may authorize
any officer to remove subordinate officers. The Board of Directors may authorize
the Corporation's employment of an officer for a period in excess of the term of
the Board. The Board of Directors at any regular or special meeting shall have
power to fill a vacancy occurring in any office for the unexpired portion of the
term.
Section 9. Substitutes.
The Board of Directors may, from time to time in the absence
of any one of its officers or at any other time, designate any other person or
persons on behalf of the Corporation to sign any contracts, deeds, notes or
other instruments in the place or stead of any of such officers, and may
designate any person to fill any one of said offices, temporarily or for any
particular purpose; and any instruments so signed in accordance with a
resolution of the Board shall be the valid act of the Corporation as fully as if
executed by any regular officer.
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ARTICLE IV
Resignation
Any director or officer may resign from office at any time.
Such resignation shall be made in writing and shall take effect from the time of
its receipt by the Corporation, unless some time be fixed in the resignation,
and then from that date. The acceptance of a resignation shall not be required
to make it effective.
ARTICLE V.
Commercial Paper, Etc.
All bills, notes, checks, drafts and commercial paper of all
kinds to be executed by the Corporation as maker, acceptor, endorser or
otherwise, and all assignments and transfers of stock, contracts, or written
obligations of the Corporation, and all negotiable instruments, shall be made in
the name of the Corporation and shall be signed by any one or more of the
following officers as the Board of Directors may from time to time designate:
the President and Chief Executive Officer, any Vice President, or the Treasurer,
or such other person or persons as the Board of Directors or Executive Committee
may from time to time designate.
ARTICLE VI.
Fiscal Year
The fiscal year of the Corporation shall cover such period of
12 months as the Board of Directors may determine. In the absence of any such
determination, the accounts of the Corporation shall be kept on a fiscal year
ended June 30 basis.
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ARTICLE VII.
Seal
The seal of the Corporation shall be in the form of two
concentric circles inscribed with the name of the Corporation and the year and
state in which it is incorporated. The Secretary or Treasurer, or any Assistant
Secretary or Assistant Treasurer, shall have the right and power to attest to
the corporate seal. In lieu of affixing the corporate seal to any document, it
shall be sufficient to meet the requirements of any law, rule or regulation
relating to a corporate seal to affix the word "(SEAL)" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII.
Stock
Section 1. Issue.
Each stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number and class of shares of
stock owned in the Corporation. Each certificate shall be signed by the
President and Chief Executive Officer or any Vice President and be countersigned
by the Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer. The signatures of the Corporation's officers and its corporate seal
appearing on stock certificates may be facsimiles if each such certificate is
authenticated by the manual signature of an officer of a duly authorized
transfer agent. Stock certificates shall be in such form, not inconsistent with
law and the Charter, as shall be approved by the Board of Directors. In case any
officer of the Corporation who has signed any certificate ceases to be an
officer of the Corporation, whether by reason of death, resignation or
otherwise, before such certificate is issued, then the certificate may
nevertheless be issued by the Corporation with the same effect as if the officer
had not ceased to be such officer as of the date of such issuance.
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Section 2. Transfers.
The Board of Directors shall have power and authority to make
all such rules and regulations as the Board may deem expedient concerning the
issue, transfer and registration of stock certificates. The Board of Directors
may appoint one or more transfer agents and/or registrars for its outstanding
stock, and their duties may be combined. No transfer of stock shall be
recognized or binding upon the Corporation until recorded on the books of the
Corporation, or, as the case may be, of its transfer agent and/or of its
registrar, upon surrender and cancellation of a certificate or certificates for
a like number of shares.
Section 3. Record Dates for Dividends and Stockholders'
Meeting.
The Board of Directors may fix a date not exceeding 90 days
preceding the date of any meeting of stockholders, any dividend payment date or
any date for the allotment of rights, as a record date for the determination of
the stockholders entitled to notice of and to vote at such meeting, or entitled
to receive such dividends or rights, as the case may be, and only stockholders
of record on such date shall be entitled to notice of and to vote at such
meeting or to receive such dividends or rights, as the case may be. In the case
of a meeting of stockholders, the record date shall be fixed not less than ten
days prior to the date of the meeting.
Section 4. New Certificates.
In case any certificate of stock is lost, stolen, mutilated or
destroyed, the Board of Directors may authorize the issuance of a new
certificate in place thereof upon such indemnity to the Corporation against loss
and such other terms and conditions as it may deem advisable. The Board of
Directors may delegate such power to any officer or officers of the Corporation
or to any transfer agent or registrar of the Corporation; but the Board of
Directors, such officer or officers or such transfer agent or registrar may, in
their discretion, refuse to issue such new certificate save upon the order of
some court having jurisdiction.
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ARTICLE IX.
Notice
Section 1. Notice to Stockholders.
Whenever by law or these Bylaws notice is required to be given
to any stockholder, such notice shall be in writing and may be given to each
stockholder by personal delivery or at the stockholder's residence or usual
place of business, or by mailing it by registered or certified mail, postage
prepaid, and addressed to the stockholder at the address appearing on the books
of the Corporation or its transfer agent. Such leaving or mailing of notice
shall be deemed the time of giving such notice.
Section 2. Notice to Directors and Officers.
Whenever by law or these Bylaws notice is required to be given
to any director or officer, such notice may be given in any one of the following
ways: by personal notice to such director or officer, by telephone communication
with such director or officer personally, by telecopy, addressed to such
director or officer at the address appearing on the books of the Corporation, or
by registered or certified mail, by depositing the same in writing in the post
office or in a letter box in a postage paid, sealed wrapper addressed to such
director or officer at the address appearing on the books of the Corporation.
The time when such notice shall be consigned to a communication company for
delivery shall be deemed to be the time of the giving of such notice; if mailed,
such notice shall be deemed given when received.
Section 3. Waiver of Notice.
Notice to any stockholder or director of the time, place
and/or purpose of any meeting of stockholders or directors required by these
Bylaws may be dispensed with if such stockholder shall either attend in person
or by proxy, or if such director shall attend in person, or if such absent
stockholder or director shall, in writing filed with the records of the meeting
either before or after the holding thereof, waive such notice.
ARTICLE X.
Voting of Stock in Other Corporations
Any stock in other corporations, which may from time to time
be held by the Corporation, may be represented and voted at any meeting of
stockholders of such other corporations by the President and Chief Executive
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Officer or a Vice-President or by proxy or proxies appointed by the President
and Chief Executive Officer or a Vice-President, or otherwise pursuant to
authorization thereunto given by a resolution of the Board of Directors adopted
by a vote of a majority of the directors.
ARTICLE XI.
Indemnification
To the maximum extent permitted by the Maryland General
Corporation Law, as from time to time amended, the Corporation shall indemnify
its currently acting and its former directors, officers, agents and employees
and those persons who, at the request of the Corporation serve or have served
another corporation, partnership, joint venture, trust or other enterprise in
one or more of such capacities against any and all liabilities incurred in
connection with their services in such capacities to the extent determined
appropriate by the Board of Directors. To the extent required by the Charter or
applicable law, the Corporation shall indemnify such individuals.
ARTICLE XII.
Amendments
Except as expressly prohibited herein or in the Corporation's
Charter, these Bylaws may be added to, altered, amended, repealed or suspended
by a vote of a majority of the Board of Directors at any regular or special
meeting of the Board.
Approved by the Board of Directors on June 17, 1997 and
eEffective at closing on July ___, 1997.
17
Exhibit 10.1
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. Issuance and Sale of Series D Preferred Stock..........................................................1
1.1. The Purchase..........................................................................................1
1.2. The Closing...........................................................................................1
1.3. Delivery at the Closing...............................................................................1
SECTION 2. Representations and Warranties of the Company..........................................................2
2.1. Organization and Good Standing; Power and Authority; Qualifications...................................2
2.2. Authorization of the Documents........................................................................2
2.3. Capitalization........................................................................................3
2.4. Authorization and Issuance of Capital Stock...........................................................4
2.5. Reservation of Shares.................................................................................5
2.6. Financial Statements..................................................................................5
2.7. Absence of Undisclosed Liabilities....................................................................5
2.8. Absence of Material Changes...........................................................................5
2.9. No Conflict...........................................................................................6
2.10. Agreements...........................................................................................7
2.11. Patents, Trademarks, etc.............................................................................7
2.12. Equity Investments; Subsidiaries.....................................................................8
2.13. Corporate Minute Books...............................................................................8
2.14. Suitability..........................................................................................8
2.15. Assets...............................................................................................8
2.16. Employee Benefit Plans...............................................................................9
2.17. Labor Relations; Employees..........................................................................12
2.18. Litigation; Orders..................................................................................12
2.19. Compliance with Laws; Permits.......................................................................13
2.20. Offering Exemption..................................................................................14
2.21. Related Transactions................................................................................14
2.22. Taxes...............................................................................................14
2.23. Environmental Protection............................................................................15
2.24. Consents............................................................................................18
2.25. Insurance...........................................................................................18
2.26. Brokers.............................................................................................18
2.27. Fraud and Abuse.....................................................................................18
2.28. Use of Proceeds.....................................................................................19
2.29. Previous Issuances..................................................................................19
2.30. Real Property.......................................................................................20
2.31. Medical Loss Ratio; Enrollees.......................................................................20
2.32. Participating Physicians............................................................................20
2.33. Accounts Receivable.................................................................................21
2.34. Investment Banking Services.........................................................................21
</TABLE>
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<TABLE>
<S> <C>
2.35. Registration Rights.................................................................................21
2.36. SEC Reports.........................................................................................21
2.37. Disclosure..........................................................................................22
SECTION 3. Representations, Warranties and Covenants of Beacon...................................................22
SECTION 4. Certain Covenants.....................................................................................23
4.1. Operation of the Business Prior to Closing...........................................................23
4.2. Conduct of the Company Prior to Closing..............................................................24
4.3. Third Party Consents Prior to Closing................................................................25
4.4. No Negotiation Prior to Closing......................................................................25
4.5. Access to Records Prior to Closing...................................................................26
4.6. Post-Closing Covenants...............................................................................26
SECTION 5. Conditions to Beacon's Obligation to Close............................................................29
SECTION 6. Survival of Representations, Warranties and Covenants, etc............................................31
SECTION 7. Termination...........................................................................................31
7.1. Termination..........................................................................................31
7.2. Effect of Termination................................................................................31
SECTION 8. Indemnification.......................................................................................31
8.1. General Indemnification..............................................................................31
8.2. Indemnification Principles...........................................................................32
8.3. Claim Notice.........................................................................................32
8.4. Claim Procedure......................................................................................33
SECTION 9. Subsequent Closing...................................................................................34
SECTION 10. Remedies............................................................................................36
SECTION 11. Expenses............................................................................................36
SECTION 12. Taxes...............................................................................................36
SECTION 13. Further Assurances..................................................................................36
SECTION 14. Successors and Assigns..............................................................................36
SECTION 15. Entire Agreement....................................................................................36
SECTION 16. Notices.............................................................................................37
SECTION 17. Amendments..........................................................................................37
SECTION 18. Counterparts........................................................................................37
</TABLE>
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<TABLE>
<S> <C>
SECTION 19. Headings............................................................................................38
SECTION 20. Nouns and Pronouns..................................................................................38
SECTION 21. Governing Law.......................................................................................38
SECTION 22. Severability........................................................................................38
</TABLE>
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List of Exhibits
EXHIBIT A Shareholders' Agreement
EXHIBIT B Registration Rights Agreement
EXHIBIT C Articles of Amendment and Restatement of the Company
EXHIBIT D By-Laws of the Company
EXHIBIT E-1 Opinion of Venable, Baetjer & Howard, LLP
EXHIBIT E-2 Opinion of Counsel to the Company
EXHIBIT F Form of Shareholders Letter
EXHIBIT G MLR Letter
EXHIBIT H Company Operating Plan
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Index of Defined Terms
<TABLE>
<S> <C>
Affiliated Group...................................................................................2.22(a)
Affiliated Period..................................................................................2.22(a)
Beacon............................................................................................Preamble
Beacon Entity..........................................................................................8.1
Claim Notice...........................................................................................8.3
Closing................................................................................................1.2
Class A Common Stock................................................................................2.3(a)
Class B Common Stock................................................................................2.3(a)
Class C Common Stock................................................................................2.3(a)
Code...............................................................................................2.16(a)
Common Stock........................................................................................2.3(a)
Common Stock Equivalents............................................................................2.3(c)
Company...........................................................................................Preamble
Company Benefit Plan...............................................................................2.16(a)
Company Financial Statements...........................................................................2.6
Company Group......................................................................................2.19(b)
Company Registration Statement........................................................................2.36
Contract...........................................................................................2.10(a)
Conversion Shares......................................................................................2.5
Department.........................................................................................2.16(d)
Documents...........................................................................................1.3(c)
Employee...........................................................................................2.16(a)
Employee Agreement.................................................................................2.16(a)
Encumbrances...........................................................................................2.4
Environmental Costs...................................................................................2.23
Environmental Laws....................................................................................2.23
Environmental Matter..................................................................................2.23
Environmental Permits.................................................................................2.23
ERISA..............................................................................................2.16(a)
ERISA Affiliate....................................................................................2.16(b)
Exchange Act.......................................................................................2.21(a)
Fraud and Abuse Laws...............................................................................2.27(a)
GAAP...................................................................................................2.6
GHV...................................................................................................5(j)
GHV Purchase Agreement................................................................................5(m)
Hazardous Substances..................................................................................2.23
Health Care Laws...................................................................................2.19(b)
</TABLE>
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<TABLE>
<CAPTION>
Section
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<S> <C>
HSR Act..........................................................................................3(a)(vii)
IRS................................................................................................2.16(c)
Leased Real Properties................................................................................2.30
Losses.................................................................................................8.2
Material Adverse Effect................................................................................2.1
PBGC...............................................................................................2.16(d)
PCBs..................................................................................................2.23
Pension Plan.......................................................................................2.16(f)
Permitted Encumbrances................................................................................2.30
Preferred Stock.....................................................................................2.3(a)
Purchase...............................................................................................1.1
Purchase Price.........................................................................................1.1
Registration Rights Agreement.......................................................................1.3(c)
Restated Articles...................................................................................1.3(d)
Return.............................................................................................2.22(a)
Securities Act........................................................................................2.14
Securities Agreement................................................................................2.3(b)
SEC...................................................................................................2.36
SEC Reports...........................................................................................2.36
Securities Laws.......................................................................................2.36
Series A Preferred Stock............................................................................2.3(a)
Series B Preferred Stock............................................................................2.3(a)
Series C Preferred Stock............................................................................2.3(a)
Series D Preferred Stock..........................................................................Recitals
Shareholders' Agreement.............................................................................1.3(b)
Shareholders Letter.................................................................................4.6(p)
Subsequent Closing....................................................................................9(a)
Subsequent Purchase Price.............................................................................9(a)
Subsequent Shares.....................................................................................9(a)
Subsidiary............................................................................................2.12
Taxes..............................................................................................2.22(a)
Transaction Proposals..................................................................................4.4
</TABLE>
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PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT, dated as of July 7, 1997, by and
between DOCTORS HEALTH SYSTEM, INC., a Maryland corporation (the "Company"), and
THE BEACON GROUP III - FOCUS VALUE FUND, L.P., a Delaware limited partnership
("Beacon").
W I T N E S S E T H :
--------------------
WHEREAS, the Company wishes to sell to Beacon, and Beacon wishes to
purchase from the Company, shares of the Company's Series D Convertible
Preferred Stock, par value $10.00 per share (the "Series D Preferred Stock").
ACCORDINGLY, the parties hereto hereby agree as follows:
SECTION 1. Issuance and Sale of Series D Preferred Stock. Subject to the terms
and conditions of this Agreement, the Company has agreed to sell to Beacon, and
Beacon has agreed to purchase from the Company, 3,000,000 shares of Series D
Preferred Stock at a purchase price of $10.00 per share.
1.1. The Purchase. At the Closing (as defined in Section 1.2), Beacon shall
purchase from the Company, and the Company shall sell to Beacon, 2,000,000
shares of Series D Preferred Stock (the "Purchase"). The aggregate purchase
price to be paid by Beacon for the Series D Preferred Stock purchased by it at
the Closing is $20,000,000 (the "Purchase Price").
1.2. The Closing. The closing of the Purchase (the "Closing") shall take
place as soon as reasonably practicable following the satisfaction or waiver of
each of the conditions set forth in Section 5 hereof at the chief executive
offices of the Company.
1.3. Delivery at the Closing. At the Closing, the following shall occur:
(a) The Company shall deliver to Beacon a certificate or certificates
representing the shares of Series D Preferred Stock purchased hereunder by
Beacon, registered in the name of Beacon or an affiliated nominee. Delivery of
such certificates to Beacon shall be made against receipt by the Company from
Beacon of the Purchase Price, which shall be paid by wire transfer to an account
designated at least two business days prior to the Closing by the Company.
(b) A Shareholders' and Voting Agreement (the "Shareholders'
Agreement") among the Company, Beacon and the other parties thereto,
substantially in the form of Exhibit A attached hereto, shall be duly executed
and delivered by the parties thereto.
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(c) The registration rights agreement (the "Registration Rights
Agreement," together with this Agreement and the Shareholders' Agreement, the
"Documents") between the Company and Beacon, substantially in the form of
Exhibit B attached hereto, shall be duly executed and delivered by the parties
thereto.
(d) The Company shall deliver to Beacon a copy of the Articles of
Amendment and Restatement of the Company (the "Restated Articles") certified by
the Department of Assessments and Taxation of the State of Maryland, which shall
be in the form of Exhibit C attached hereto, and a certified copy of the By-laws
of the Company, which shall be in the form of Exhibit D attached hereto.
(e) Beacon shall receive from Venable, Baetjer & Howard, LLP, counsel
for the Company, an opinion addressed to Beacon, dated as of the Closing,
satisfactory in form and substance to Beacon, which shall include the opinions
set forth in Exhibit E-1 attached hereto.
(f) Beacon shall receive from Paul Serini, Esq. and Thomas Mapp,
Esq., an opinion addressed to Beacon, dated as of the Closing, satisfactory in
form and substance to Beacon, which shall include the opinions set forth in
Exhibit E-2 attached hereto.
SECTION 2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Beacon as of the date hereof and as of the date of
the Closing as follows:
2.1. Organization and Good Standing; Power and Authority; Qualifications.
The Company (i) is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, (ii) has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as presently conducted and as proposed to be conducted and (iii) has all
requisite power and authority to enter into and carry out the transactions
contemplated by the Documents. The Company is qualified to transact business as
a foreign corporation in, and is in good standing under the laws of, those
jurisdictions listed on Schedule 2.1, which jurisdictions constitute all of the
jurisdictions wherein the character of the property owned or leased or the
nature of the activities conducted by it makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified and in good
standing would not, individually or in the aggregate, have or reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
the Company and its subsidiaries taken as a whole (a "Material Adverse Effect").
2.2. Authorization of the Documents. The execution, delivery and
performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Company, and each of the Documents
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except to the extent that
enforceability may be limited by
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bankruptcy, insolvency or other similar laws affecting creditors' rights
generally. Shareholders of the Company representing not less than 80% of the
issued and outstanding voting shares of the Company have executed and delivered
the Shareholders' Agreement as of the date hereof and shareholders of the
Company representing not less than 90% of the issued and outstanding voting
shares of the Company shall have executed and delivered the Shareholders'
Agreement as of the Closing.
2.3. Capitalization. (a) The Company is authorized to issue 20,700,000
shares of Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), 10,000,000 shares of Class B Common Stock, par value $.01 per share
(the "Class B Common Stock"), 29,050,000 shares of Class C Common Stock, par
value $.01 per share (the "Class C Common Stock" and, together with the Class A
Common Stock and the Class B Common Stock, the "Common Stock"), 1,000,000 shares
of Series A Convertible Preferred Stock, par value $5.00 per share (the "Series
A Preferred Stock"), 355,556 shares of Series B Convertible Preferred Stock, par
value $11.25 per share (the "Series B Preferred Stock"), 1,500,000 shares of
Series C Convertible Preferred Stock, par value $17.50 per share (the "Series C
Preferred Stock"), and 1,000,000 shares of Preferred Stock. Upon the filing of
and acceptance of the Restated Articles with the Department of Assessments and
Taxation of the State of Maryland, the Company will be authorized to issue
20,700,000 shares of Class A Common Stock; 10,000,000 shares of Class B Common
Stock; 29,050,000 shares of Class C Common Stock; 1,000,000 shares of Series A
Preferred Stock; 444,444 shares of Series B Preferred Stock; 1,500,000 shares of
Series C Preferred Stock; and 5,750,000 shares of Series D Preferred Stock (any
combination of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock may be referred to
herein as "Preferred Stock"). Immediately following the Closing, 810,000 shares
of Class A Common Stock will be issued and outstanding, 2,634,448 shares of
Class B Common Stock will be issued and outstanding, no shares of Class C Common
Stock will have been issued and no such shares will be outstanding, 1,000,000
shares of Series A Preferred Stock will be issued and outstanding, 444,444
shares of Series B Preferred Stock will be issued and outstanding, 571,428
shares of Series C Preferred Stock will be issued and outstanding, and 2,000,000
shares of Series D Preferred Stock will be issued and outstanding as of the
Closing and 3,000,000 shares of Series D Preferred Stock will be issued and
outstanding as of the Subsequent Closing (as defined in Section 9(a)).
(b) Schedule 2.3(b) hereto contains a list of (i) all holders of record of
capital stock of the Company, including the number of shares of capital stock
held by each such holder, and (ii) all outstanding warrants, options,
agreements, convertible securities or other commitments pursuant to which the
Company is or may become obligated to issue any shares of the capital stock or
other securities of the Company, which names all persons entitled of record to
receive such shares or other securities, the shares of capital stock or other
securities required to be issued thereunder as of the date hereof and the price
per share, if any, payable with respect to
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the issuance of any share of capital stock issuable thereunder. Except as set
forth on Schedule 2.3(b) or as contemplated by the Documents there is no
agreement, restriction or encumbrance (such as a preemptive or similar right,
right of first refusal, right of first offer, proxy, voting agreement, voting
trust, registration rights agreement, shareholders' agreement, etc.) with
respect to the purchase, sale or voting of any shares of capital stock or other
securities of the Company (a "Securities Agreement") to which the Company is a
party and, to the Company's knowledge, there are no Securities Agreements to
which the Company is not a party, pursuant to any provision of law, the Restated
Articles, any agreement or otherwise. Except as contemplated by the Documents or
Schedule 2.3(b) or except for the right to vote its shares of Common Stock for
the election of directors, no person has the right to nominate or elect one or
more directors of the Company.
(c) The shares of Class C Common Stock issuable upon conversion of the
Series D Preferred Stock issued to Beacon on the date of the Closing under this
Agreement represent, in the aggregate, 30% of the outstanding Common Stock of
the Company on the date of the Closing on a fully diluted basis (assuming for
purposes of calculating full dilution, all securities convertible into, or
exchangeable or exercisable for, shares of Common Stock (collectively, "Common
Stock Equivalents") as having been converted, exchanged, or exercised) and the
voting power of such issued shares will represent, in the aggregate, 30% of the
total number of votes able to be cast on any matter by all voting securities of
the Company (other than any matter the holders of Class A Common Stock, Class B
Common Stock, Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock are entitled by law or pursuant to the Restated Articles to vote
on as a separate class and any matter to be voted on by the holders of shares of
Series D Preferred Stock as a separate class) on the date of the Closing on a
fully diluted basis (treating, for purposes of calculating full dilution, all
Common Stock Equivalents as having been converted, exchanged, or exercised).
2.4. Authorization and Issuance of Capital Stock. Except as disclosed on
Schedule 2.4, the authorization, issuance, sale and delivery of the Series D
Preferred Stock pursuant to this Agreement and the authorization, reservation,
issuance and delivery of the Conversion Shares (as defined in Section 2.5) have
been duly authorized by all requisite corporate action on the part of the
Company, and (i) the Series D Preferred Stock, when issued, sold and delivered
in accordance with this Agreement, and (ii) the Conversion Shares, when issued
and delivered upon conversion of the Series D Preferred Stock issued to Beacon
hereunder, will be validly issued and outstanding, fully paid and nonassessable
with no personal liability attaching to the ownership thereof, free and clear of
any mortgages, judgments, claims, liens, security interests, pledges, escrows,
charges or other encumbrances of any kind or character whatsoever
("Encumbrances"), other than Encumbrances, if any, arising as a result of
actions taken by Beacon, and not subject to preemptive or similar rights of the
shareholders of the Company or others. The terms, designations, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of any series of Preferred
Stock of the
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Company are as stated in the Restated Articles.
2.5. Reservation of Shares. The Company has reserved a sufficient number
of shares of Class C Common Stock for issuance to Beacon upon the conversion of
the Series D Preferred Stock issued to Beacon in accordance with the Documents
and the conversion of Class C Common Stock to Common Stock in accordance with
the Documents. The shares of Class C Common Stock issuable upon the conversion
of the Series D Preferred Stock issued to Beacon hereunder shall be referred to
collectively as the "Conversion Shares."
2.6. Financial Statements. The Company has furnished to Beacon the audited
statements of income, shareholders' equity and cash flows of the Company for the
fiscal year ended June 30, 1996 and the audited balance sheet of the Company as
of such date (the "Audited Financial Statements"), and the unaudited balance
sheet of the Company as of March 31, 1997 and the related unaudited statements
of income and cash flows for the three-month period ended March 31, 1997 (all
such financial statements, the "Unaudited Financial Statements"). All such
financial statements (i) are in accordance with the books and records of the
Company, (ii) have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied (except that such unaudited
financial statements do not contain all of the footnotes required under GAAP)
and (iii) fairly and accurately present the financial position of the Company
and its consolidated Subsidiaries (as defined in Section 2.12) as of June 30,
1996 and March 31, 1997, respectively, and the results of its operations and
cash flows for the year ended June 30, 1996 and for the three months ended March
31, 1997 (subject, in the case of such unaudited financial statements, to normal
year-end audit adjustments), respectively.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on Schedule
2.7, the Company has no liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due and
regardless of when asserted) other than (i) liabilities or obligations reserved
against or otherwise disclosed in the Audited Financial Statements, (ii) other
liabilities or obligations that were incurred after June 30, 1996 in the
ordinary course of business consistent (in amount and kind) with past practice
(none of which is a liability resulting from breach of contract, breach of
warranty, tort, infringement, claim or lawsuit) and that do not exceed $150,000
in the aggregate, and (iii) liabilities or obligations under Contracts listed in
the Schedules to this Agreement or under Contracts that are not required to be
disclosed therein (but not liabilities for breaches thereof).
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8 and
the SEC Reports (as defined in Section 2.36), since June 30, 1996, the Company
has conducted its business in the ordinary course, consistent with past practice
and there has not been (a) any material adverse change in the condition
(financial or otherwise), results of operations, business, assets, or
liabilities of the Company or any event or condition (other than events or
conditions affecting the Company's industry generally
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and that have been publicly reported) that could reasonably be expected to have
such a material adverse change, (b) any waiver or cancellation of any material
right of the Company, or the cancellation of any material debt or claim held by
the Company, (c) any payment, discharge or satisfaction of any claim, liability
or obligation of the Company other than in the ordinary course of business, (d)
any Encumbrance upon the assets of the Company other than any Permitted
Encumbrance (as defined in Section 2.30), (e) any declaration or payment of
dividends on, or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any securities of the Company, (f) any issuance of
any stock, bonds or other securities of the Company other than in connection
with physician affiliation transactions, (g) any sale, assignment or transfer of
any tangible or intangible assets of the Company except in the ordinary course
of business, (h) any loan by the Company to any officer, director, employee,
consultant or shareholder of the Company (other than advances to such persons in
the ordinary course of business in connection with travel and travel related
expenses), (i) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the assets, property, financial
condition or results of operations of the Company, (j) any increase, direct or
indirect, in the compensation paid or payable to any officer or director of the
Company or, other than in the ordinary course of business, to any other
employee, consultant or agent of the Company, (k) any change in the accounting
or tax methods, practices or policies, or of any material tax election of the
Company, (l) any indebtedness incurred for borrowed money by the Company, (m)
any amendment to or termination of any material agreement to which the Company
is a party other than the expiration of any such agreement in accordance with
its terms, (n) any change with respect to the regulation of the Company or its
activities by any administrative agency or governmental body to the extent such
change has had or could reasonably be expected to have a Material Adverse
Effect, (o) any material change in the manner of business or operations of the
Company (including, without limitation, any accelerations or deferral of the
payment of accounts payable or other current liabilities or deferral of the
collection of accounts or notes receivable), (p) any capital expenditures or
commitments therefor by the Company that aggregate in excess of $100,000, (q)
any amendment of the Restated Articles, By-laws or other organizational
documents of the Company, (r) any other material transaction entered into by the
Company whether or not in the ordinary course of business, or (s) any agreement
or commitment (contingent or otherwise) by the Company to do any of the
foregoing.
2.9. No Conflict. The execution and delivery by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions hereof
and thereof (including, without limitation, the issuance, sale and delivery by
the Company of the Series D Preferred Stock and the Conversion Shares) will not
(a) violate any provision of law, statute, rule or regulation, or any ruling,
writ, injunction, order, judgment or decree of any court, administrative agency
or other governmental body applicable to it, or any of its properties or assets,
(b) except as set forth on Schedule 2.9, conflict with or result in any breach
of any of the terms, conditions or
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provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any Encumbrance upon any of its properties
or assets under, any Contract to which it is a party or (c) violate the Restated
Articles or By-laws.
2.10. Agreements. (a) Except as set forth on Schedule 2.10, the Company is
not a party to any contract, agreement, indenture, mortgage, guaranty, lease,
license or understanding, written or oral (a "Contract"), other than any
Contract that (i) pursuant to its terms, has expired, been terminated or fully
performed by the parties, and in each case, under which the Company has no
liability, contingent or otherwise, or (ii) involves payments to or from the
Company (as opposed to an indemnity agreement or similar contract under which
the Company has any contingent liability) which payments do not aggregate on an
annual basis to $30,000 or more, and in each case, is not material to the
business or financial condition of the Company.
(b) Complete copies (or, if oral, full written descriptions) of all
Contracts required to be listed on Schedule 2.10, including all amendments
thereto, have been provided to Beacon. Except as set forth on Schedule 2.10,
each of such Contracts is, as of the date hereof, and will continue to be at and
after the Closing, a legal, valid, and binding obligation of, enforceable
against, and in full force and effect against, the Company and, to the best
knowledge of the Company, the other parties thereto. Except as set forth on
Schedule 2.10, there is no breach, violation or default by the Company and no
event (including, without limitation, the consummation of the transactions
contemplated by the Documents) that, with notice or lapse of time or both, would
(i) constitute a material breach, violation or default by the Company under any
such Contract or (ii) give rise to any lien or right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration against the Company under any such Contract. Except as set forth in
Schedule 2.10, there are no outstanding claims or disputes involving any of the
Contracts. To the best knowledge of the Company, except as set forth on Schedule
2.10, no other party to any of such Contracts is in arrears in any material
respect of the performance or satisfaction of the terms and conditions on its
part to be performed or satisfied under any of such Contracts, no waiver or
indulgence has been granted by any of the parties thereto and no party to any of
such Contracts has repudiated any provision thereof.
2.11. Patents, Trademarks, etc. The Company owns, possesses or has the
right to use pursuant to license, sublicense, agreement or permission all
patents, inventions, trademarks, service marks, trade names, whether registered
or otherwise, together with all goodwill associated therewith, copyrights,
licenses, information, proprietary rights, and processes necessary for the
lawful conduct of its business as now conducted, without any infringement of or
conflict with the rights of others. Except as set forth in Schedule 2.11, there
are no outstanding options, licenses, or agreements of any kind relating to the
foregoing intellectual property rights, nor is the Company bound by or a party
to any options, licenses, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets,
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licenses, information, proprietary rights and processes of any other person or
entity. Except as set forth in Schedule 2.11, the Company has not received any
communications alleging that the conduct of the Company's business infringes or
conflicts with the rights of others under patents, trademarks, copyrights and
trade secrets. To the best of the Company's knowledge, the Company's business as
now conducted and as proposed to be conducted will not infringe or conflict with
the rights of others, including rights under patents, trademarks, copyrights and
trade secrets.
2.12. Equity Investments; Subsidiaries. Except as set forth on Schedule
2.12, the Company does not have any Subsidiaries and has not owned, and does not
currently own, directly or indirectly, any capital stock or other proprietary
interest, directly or indirectly, in any company, association, trust,
partnership, joint venture or other entity. For purposes of this Agreement, the
term "Subsidiary" means, with respect to any person, any company, partnership or
other entity (a) of which shares of capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other similar managing body of such company, partnership or other entity are at
the time owned or controlled, directly or indirectly, by such person or (b) the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries by such person. The business currently conducted by each
Subsidiary is described on Schedule 2.12 beside the name of each such
Subsidiary.
2.13. Corporate Minute Books. The corporate records of the Company and
each of its Subsidiaries are true, correct and complete. True, correct and
complete copies of all minutes of meetings or other actions by the directors,
shareholders or incorporators of the Company and each of its Subsidiaries since
each of their inceptions have previously been provided to Beacon or to Beacon's
designated agents or representatives.
2.14. Suitability. To the best knowledge of the Company, none of the
events described in Item 401(f) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), has occurred during the last five years
with respect to any director or officer of the Company.
2.15. Assets. (a) The Company has good and marketable title, or a valid
leasehold interest in or contractual right to use, all of its assets and
properties, free and clear of any Encumbrances except (i) as disclosed in
Schedule 2.15(a), (ii) Encumbrances for taxes not yet due and payable, (iii)
Encumbrances set forth on Schedule 2.15(a) for taxes and charges and other
claims, the validity of which the Company is contesting in good faith, or (iv)
Permitted Encumbrances. Upon completion of the Closing, the assets and
properties owned by, or leased to, the Company are sufficient in all material
respects for the conduct of the business and operation of the Company as
presently conducted and as presently proposed to be conducted.
(b) Except as set forth on Schedule 2.15(b), the buildings, facilities,
machinery, equipment, furniture, leasehold and other improvements, fixtures,
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vehicles, structures, any related capitalized items and other tangible property
owned by, or leased to the Company, as of the date hereof, (i) are in good
operating condition and repair (normal wear and tear excepted), free (in the
case of buildings or structures located on the Leased Real Properties (as
defined in Section 2.30)), to the best knowledge of the Company without
independent inquiry, of any material structural or engineering defects, (ii) are
subject to continued repair and replacement in accordance with past practice and
all applicable regulations and (iii) are suitable for their current use.
(c) Except as set forth on Schedule 2.15(c), the Company has not received
notice of, and has no knowledge of, any pending, threatened or contemplated
condemnation proceeding or similar taking affecting the assets of the Company
(including the Leased Real Properties).
2.16. Employee Benefit Plans.
(a) Schedule 2.16(a) hereto contains a true and complete list of (i) each
plan, program, policy, contract, agreement or other arrangement, or commitment
therefor, providing for bonus compensation, severance, termination pay,
performance awards, stock or stock-related awards, fringe benefits or other
employee benefits of any kind, whether formal or informal, funded or unfunded,
written or oral, and whether or not legally binding, that is now or previously
has been sponsored, maintained, contributed to or required to be sponsored,
maintained or contributed to by the Company, any of its Subsidiaries or any
ERISA Affiliate (as defined in Section 2.16(b)) or pursuant to which the
Company, any of its Subsidiaries or any ERISA Affiliate has or may have any
liability, contingent or otherwise, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (each, a "Company Benefit
Plan"); and (ii) each management, employment, bonus, option, equity (or equity
related), severance, consulting, non compete, confidentiality or similar
agreement or contract, pursuant to which the Company, any of its Subsidiaries or
any ERISA Affiliate has any liability, contingent or otherwise, to any current
or former employee, consultant, independent contractor, agent or director of the
Company (an "Employee") (each, an "Employee Agreement"). Except as identified on
Schedule 2.16, neither the Company, any of its Subsidiaries nor any ERISA
Affiliate sponsors, maintains, contributes to, or is required to sponsor,
maintain or contribute to, nor has the Company, any of its Subsidiaries or any
ERISA Affiliates ever sponsored, maintained, contributed to or been required to
sponsor, maintain or contribute to, or incurred any liability to, (i) any
"multi-employer plan" (as defined in ERISA Section 3(37)) or (ii) any Company
Benefit Plan that provides, or has any liability to provide, life insurance,
medical, severance or other employee welfare benefits to any Employee upon his
or her retirement or termination of employment, except as required by Section
4980B of the Internal Revenue Code of 1986, as amended (the "Code").
(b) "ERISA Affiliate" shall mean any entity that is (or at any
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relevant time was) a member of a "controlled group of corporations," under
"common control," a member of any "affiliated service group" or otherwise
required to be aggregated with the Company as set forth in Section 414(b), (c),
(m) or (o) of the Code or Section 4001(a)(14) of ERISA.
(c) The Company has provided to Beacon current, accurate and complete
copies of all documents embodying or relating to each Company Benefit Plan and
each Employee Agreement, including all amendments thereto, trust or funding
agreements relating thereto (if any), the two most recent annual reports (Series
5500 and related schedules) required under ERISA (if any), summary annual
reports, the most recent determination letter (if any) received from the
Internal Revenue Service (the "IRS"), the most recent summary plan description
(with all material modifications) (if any), if the Company Benefit Plan is
funded, the most recent annual and periodic accounting of Company Benefit Plan
assets, and all material written communications to any Employee or Employees
relating to any Company Benefit Plan or Employee Agreement.
(d) Except as identified on Schedule 2.16(d) with respect to each Company
Benefit Plan (i) each of the Company, its Subsidiaries and ERISA Affiliates has
performed all obligations required to be performed by it under each Company
Benefit Plan and Employee Agreement and none of the Company, its Subsidiaries,
or its ERISA Affiliates is in default under, or in violation of, any Company
Benefit Plan, (ii) each Company Benefit Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including, without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
U.S. Department of Labor (the "Department"); (iii) each Company Benefit Plan
intended to qualify under Section 401 of the Code, including, without
limitation, the DHS 401(k) Profit Sharing Plan, the Primary Care Practice
Associates, Inc. 401(k) Profit Sharing Plan and any other plans which were
acquired or assumed by the Company, or with respect to which the Company became
a sponsor, or with respect to which the Company has liability, contingent or
otherwise is, and since its inception has been, so qualified and a determination
letter has been issued by the IRS to the effect that each such Company Benefit
Plan is so qualified and that each trust forming a part of any such Company
Benefit Plan is exempt from tax pursuant to Section 501(a) of the Code or the
period for filing an application for such determination letter has not yet
expired and no circumstances exist that would adversely affect this
qualification or exemption; (iv) to the best knowledge of the Company, no
nonexempt "prohibited transaction," within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any Company Benefit
Plan; (v) there are no actions, proceedings, arbitrations, suits or claims
pending, or to the best knowledge of the Company, any of its Subsidiaries, or
any ERISA Affiliate, threatened or anticipated (other than routine claims for
benefits) against the Company, any of its Subsidiaries, or any ERISA Affiliate
or any administrator, trustee or other fiduciary of any Company Benefit Plan
with respect to
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any Company Benefit Plan or Employee Agreement, or against any Company Benefit
Plan or against the assets of any Company Benefit Plan; (vi) to the best
knowledge of the Company, no event or transaction has occurred with respect to
any Company Benefit Plan that would result in the imposition of any tax under
Chapter 43 of Subtitle D of the Code; (vii) each Company Benefit Plan can be
amended, terminated or otherwise discontinued without liability to the Company,
or any of its Subsidiaries, or any ERISA Affiliate; (viii) no Company Benefit
Plan is under audit or investigation by the IRS, the Department or the Pension
Benefit Guaranty Corporation ("PBGC"), and to the best knowledge of the Company
and any ERISA Affiliate, no such audit or investigation is pending or
threatened.
(e) The execution of, and performance of the transactions contemplated in,
this Agreement will not in and of itself constitute an event under any Company
Benefit Plan or Employee Agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any Employee.
(f) Except as identified on Schedule 2.16(f), with respect to each Company
Benefit Plan that is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan"), (i) no steps have been taken to
terminate any Pension Plan now maintained or contributed to, no termination of
any Pension Plan has occurred pursuant to which all liabilities have not been
satisfied in full, no liability under Title IV of ERISA has been incurred by the
Company, any of its Subsidiaries or any ERISA Affiliate that has not been
satisfied in full, and no event has occurred and no condition exists that could
reasonably be expected to result in the Company, any of its Subsidiaries or any
ERISA Affiliate incurring a liability under Title IV of ERISA or could
constitute grounds for terminating any Pension Plan; (ii) no proceeding has been
initiated by the PBGC to terminate any Pension Plan or to appoint a trustee to
administer any Pension Plan; (iii) each Pension Plan that is subject to Part 3
of Subtitle B of Title I of ERISA or Section 412 of the Code, has been
maintained in compliance with the minimum funding standards of ERISA and the
Code and no such Pension Plan has incurred any "accumulated funding deficiency,"
as defined in Section 412 of the Code and Section 302 of ERISA, whether or not
waived; (iv) neither the Company, any of its Subsidiaries nor any ERISA
Affiliate has sought nor received a waiver of its funding requirements with
respect to any Pension Plan and all contributions payable with respect to each
Pension Plan have been timely made; (v) no reportable event, within the meaning
of Section 4043 of ERISA, and no event described in Section 4062 or 4063 of
ERISA, has occurred with respect to any Pension Plan; and (vi) the present value
of all accrued benefits of each Pension Plan, determined on a plan termination
basis using the actuarial assumptions established by the PBGC as in effect on
the date of determination, does not as of the date hereof exceed the fair market
value of the assets (that for this purpose shall not include any accrued but
unpaid contributions) of such Pension Plan.
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(g) Controlled Group Liability. The Company has no liability, contingent
or otherwise, to, or with respect to any Company Benefit Plan (other than the
Company Benefit Plans which are listed on Schedule 2.16(a)), which is now or
previously has been sponsored, maintained, contributed to, or required to be
contributed to, by or any ERISA Affiliate (other than a Subsidiary).
2.17. Labor Relations; Employees. Schedule 2.17 hereto lists all Employees
of the Company with an annual salary in excess of $100,000. Except as set forth
on Schedule 2.17 hereto, (i) each of the Company and its Subsidiaries is not
delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed
through the date hereof or amounts required to be reimbursed by them to the date
hereof, (ii) each of the Company and its Subsidiaries is in compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, (iii) each of the Company and its Subsidiaries is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, commitment or arrangement with any
labor union, and no labor union has requested or, to the best knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company, (iv) there is no labor strike, dispute, slowdown or stoppage
actually pending, or, to the best knowledge of the Company, threatened against
or involving the Company or any of its Subsidiaries, and (v) to the best
knowledge of the Company, no Employee of the Company with the title director or
any more senior title has any plans to terminate his or her employment with the
Company, and (vi) neither the Company nor any of its Subsidiaries is involved in
or threatened with any labor dispute, grievance, or litigation involving any
Employee, including, without limitation, violation of any federal, state or
local labor, safety or employment laws (domestic or foreign), charges of unfair
labor practices or discrimination complaints.
2.18. Litigation; Orders. (a) Except as set forth on Schedule 2.18(a),
there is no civil, criminal, administrative or regulatory action, suit, claim,
notice, hearing, inquiry, proceeding or investigation at law or in equity by or
before any court, regulator, arbitrator or similar panel, governmental
instrumentality or other agency now pending or, to the best knowledge of the
Company, threatened against the Company or the assets or the business of the
Company. Except as set forth in Schedule 2.18(a), the Company is not subject to
any order, writ, injunction or decree of any court of any federal, state,
municipal or other domestic or foreign governmental department, commission,
board, bureau, agency or instrumentality. The Company is not subject to any
ruling, order, decree, judgment or writ entered by any court, agency or other
authority or by Blue Cross, Blue Shield, Medicare, Medicaid or other third party
insurer (other than with respect to rulemaking or other proceedings of general
application), nor has in the past been subject to any of the same.
(b) Except as described in Schedule 2.18(b), the Company has
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no material liabilities to any third party fiscal intermediary or carrier
administering any state Medicaid program or the federal Medicare program, or
directly to any state Medicaid or the federal Medicare program, or to any other
third-party payor for the recoupment of any amounts previously paid to the
Company by any such third-party fiscal intermediary, carrier, Medicaid program,
Medicare program, or third-party payor. There are no pending or, to the best
knowledge of the Company, threatened actions by any third-party fiscal
intermediary or carrier administering any state Medicaid program or the federal
Medicare program, by the Department of Health and Human Services, any state
Medicaid agency, or any third party payor to suspend payments to the Company.
2.19. Compliance with Laws; Permits. (a) Except for matters specifically
addressed in Section 2.19(b) or as provided in Schedule 2.19, the Company (i)
has complied in all material respects with all federal, state, local and foreign
laws, rules, ordinances, codes, consents, authorizations, registrations,
regulations, decrees, directives, judgments and orders applicable to it and its
business and (ii) has all federal, state, local and foreign governmental
licenses, permits and authorizations necessary in the conduct of its business as
currently conducted, such licenses, permits and qualifications are in full force
and effect, and no violations have been recorded in respect of any such
licenses, permits and qualifications, and no proceeding is pending or, to the
best knowledge of the Company, threatened to revoke or limit any such license,
permit or qualification. Schedule 2.19 sets forth a list of all such licenses,
permits and authorizations, and the expiration dates thereof.
(b) To the best knowledge of the Company, the structure of the Company
Group's business relationships complies with applicable governmental laws,
regulations and orders, the regulations of state licensing authorities, and the
rules of ethical conduct of applicable medical societies and accrediting bodies,
including, but not limited to, those relating to (i) the corporate practice of
medicine, (ii) certificate of need and licensure of health care facilities and
providers, (iii) fee-splitting between health care providers and other entities,
(iv) payment for health care services (including without limitation the rules
promulgated by the Medicare program, comparable provisions of state and federal
law with respect to the Medicaid program, and the Health Services Cost Review
Commission), (v) the federal and state fraud and abuse laws, including
anti-kickback provisions and regulations thereunder (42 U.S.C. ss. 1320a-7 et
seq.), (vi) state and federal self referral prohibitions, including, but not
limited to, the Stark law and regulations thereunder (42 U.S.C. ss. 1395nn et
seq.), (vii) the Federal False Claims Act (31 U.S.C. ss. ss. 3729-3732), (viii)
the laws and regulations governing the activities of insurance companies and
health maintenance organizations, and (ix) the provision of health care services
and the relationship of health care providers to business corporations
(collectively, "Health Care Laws"). The Company is in compliance in all material
respects with all Health Care Laws. The Company has not been notified or advised
by any governmental agency or authority, or is otherwise aware, that it is the
subject of any investigation, inquiry, or request for information with respect
to any potential violation or alleged violation of any Health Care Laws. The
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Company knows of no reasonable basis for any such investigation or inquiry. As
used herein, the term "Company Group" shall mean the Company, all affiliated
core medical groups or other health care affiliates of the Company including,
without limitation, any physicians who own shares of the Company's capital stock
and provide medical services in connection with the Company's business, any
affiliated independent physician association, any affiliated integrated health
care delivery system or network and any affiliate or other entity with which the
Company contracts to provide medical management services.
2.20. Offering Exemption. Assuming the accuracy of the representations and
warranties contained in Section 3 hereof, the offer and sale of the Series D
Preferred Stock as contemplated hereby and the issuance and delivery of the
Conversion Shares to Beacon upon the conversion of the Series D Preferred Stock
are each exempt from registration under the Securities Act and under applicable
state securities and "blue sky" laws, as currently in effect.
2.21. Related Transactions. (a) Except as set forth on Schedule 2.21(a),
no current shareholder, director, officer or employee of the Company, or any
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of any of the
foregoing persons or the Company is presently, or during the past five years has
been, directly or indirectly, a party to any agreement, transaction or series of
similar transactions with the Company, other than in connection with any such
person's duties as a director, officer or employee of the Company.
(b) Each ongoing intercompany transaction set forth on Schedule 2.21(a),
if any, is on terms that are (i) consistent with the past practice of the
Company and (ii) at least as favorable to the Company as would be available with
independent third parties dealing at arms' length.
2.22. Taxes. (a) Except as set forth on Schedule 2.22(a), (i) the Company
(and for each Affiliated Period, each Affiliated Group of which the Company was
a member) has timely filed all Tax Returns required by law to have been filed by
it and has timely paid all Taxes required to be paid by it including, without
limitation, any Tax for which a notice of assessment or demand for payment has
been received by the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member), (ii) all Tax Returns filed by the
Company (and for each Affiliated Period, each Affiliated Group of which the
Company was a member) were complete and correct in all material respects and
(iii) all amounts required to be collected or withheld by the Company have been
collected or withheld in all material respects and any such amounts that are
required to be remitted to any taxing authority have been duly remitted. The
accruals and reserves for Taxes in each of the balance sheets referenced in
Section 2.6 are adequate in all material respects to cover any liability of the
Company for Taxes for periods through the dates of such balance sheets. The
accruals and reserves for deferred tax liability in each of the balance sheets
referenced in Section 2.6 are
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adequate to cover any such liability in accordance with GAAP. If the Company
files its Tax Returns for its taxable year that includes the date hereof in
conformance with its past practices and tax reporting, to the best knowledge of
the Company, there will be no basis for any material adverse audit adjustments
with respect to the Company under any of the provisions of the Code, or any
provisions of state, local or foreign tax law, with respect to operations and
activities of the Company during the period that began on January 1, 1996 and
ends on the date hereof. For purposes of this Agreement, "Taxes" shall mean any
taxes, assessments, duties, fees, levies, imposts, deductions, withholdings,
including, without limitation, income, gross receipts, ad valorem, value added,
excise, real or personal property, asset, sales, use, license, payroll,
transaction, capital, net worth and franchise taxes, estimated taxes,
withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever imposed by any government or taxing authority of any country or
political subdivision of any country and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the Company arising under any tax sharing agreement to
which the Company is or has been a party. For purposes of this Agreement, (i)
"Affiliated Group" shall mean any affiliated group within the meaning of Section
1504(a) of the Code (or any similar group defined under a similar provision of
state, local or foreign law), (ii) "Affiliated Period" shall mean each taxable
period during which the Company was a member of an Affiliated Group for all or
part of such period, and (iii) "Return" shall mean any report, return,
statement, estimate, declaration, notice, form or other information required to
be supplied to a taxing authority in connection with Taxes.
(b) Schedule 2.22(b) contains a list of states, territories and
jurisdictions (whether foreign or domestic) in which the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member) has
filed an income, franchise, sales and use tax return. Except as set forth on
Schedule 2.22(b), (i) there is no action, suit, proceeding or claim currently
pending, or to the knowledge of the Company, threatened, regarding any Taxes for
which the Company could be liable, (ii) there are no Returns with respect to
which an audit or examination is in progress or with respect to which a written
notification of intent to audit or examine has been received by the Company (and
for each Affiliated Period, each Affiliated Group of which the Company was a
member) from the IRS or any other taxing authority that relate to Taxes for
which the Company (and for each Affiliated Period, each Affiliated Group of
which the Company was a member) could be liable, (iii) no taxing authority in a
jurisdiction where the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) do not file Returns has made a claim,
assertion or threat that such non-filing entity is or may be subject to taxation
by such jurisdiction, (iv) the Company has not been a member of a consolidated,
combined or unitary group for federal or state income tax purposes, (v) the
Company is not a party to any Tax allocation or sharing agreement and (vi) the
Company does not have any liability for the Taxes of any person as a transferee
or successor or by contract.
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2.23. Environmental Protection. Except as set forth on Schedule 2.23(a),
the Company has been operated at all times, and is, in material compliance with
all applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in all applicable Environmental Laws. Except as set forth
on Schedule 2.23(b), the Company has obtained, is in material compliance with,
and has made all appropriate filings for issuance or renewal of, all permits,
licenses, authorizations, registrations and other governmental consents required
by any applicable Environmental Laws ("Environmental Permits"), including,
without limitation, those regulating the use, storage, treatment,
transportation, release, emission or disposal of Hazardous Substances, and all
such Environmental Permits are in full force and effect. Except as set forth on
Schedule 2.23(c), there are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending or threatened against the Company, and no requests from any
governmental authority to perform any investigatory or remedial activity have
been made to the Company, that are based on or related to any actual or alleged
release of Hazardous Substances or any other Environmental Matters or the
failure to have any required Environmental Permits. Except as set forth on
Schedule 2.23(d), to the Company's knowledge there are no past or present
conditions, events, circumstances, facts, activities, practices, incidents,
actions or omissions that (i) may give rise to any liability or other obligation
under any Environmental Laws that may require the Company to incur any material
Environmental Costs, (ii) may form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against the Company that may
require the Company to incur any material Environmental Costs, or (iii) may
interfere with or prevent continued material compliance by the Company with
Environmental Laws and/or Environmental Permits. Except as set forth on Schedule
2.23(e), to the Company's knowledge there are no and there have never been, any
underground or aboveground storage tanks, incinerators or surface impoundments
at, on, under, about, or within any Leased Real Property. Except as set forth on
Schedule 2.23(f), neither the Company nor any of its Subsidiaries has received
any notice (written or oral) or other communication that the Company or its
Subsidiaries is or may be a potentially responsible party or otherwise liable in
connection with any waste disposal site allegedly containing, or other location
used for the disposal of, any Hazardous Substances.
For the purposes of this Section 2.23, the following terms shall have the
meanings indicated:
"Environmental Costs" shall mean, without limitation, any actual or
potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company, or any of the
Company's properties or assets, to come into compliance with Environmental
Laws), investigation costs (including without limitation fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including
without limitation liabilities or obligations under any lease or other
contract), payments, damages (including, without limitation, any actual,
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punitive or consequential damages under any statutory laws, common law cause of
action or contractual obligations, and any damages (a) of third parties for
personal injury or property damage, or (b) to natural resources), civil or
criminal fines or penalties, judgments, and amounts paid in settlement, arising
out of, relating to, or resulting from any Environmental Matter.
"Environmental Laws" shall mean, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
ss.ss. 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
ss.ss. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss.
136 et seq., the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq., the Clean Water
Act (Federal Water Pollution Control Act), 33 U.S.C. ss.ss. 1251 et seq., the
Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., the Occupational Safety
and Health Act, 29 U.S.C. ss.ss. 641, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss. 1801, et seq., as any of the above statutes
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset purchase
agreements and merger agreements) relating to environmental matters, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters.
"Environmental Matter" shall mean any matter arising out of, relating to,
or resulting from pollution, contamination, protection of the environment, human
health or safety, or health or safety of employees, and any matter relating to
emissions, discharges, disseminations, releases or threatened releases of
Hazardous Substances into the air (indoor or outdoor), surface water,
groundwater, soil, buildings, facilities, real or personal property or fixtures,
or otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Substances.
"Hazardous Substances" shall mean any pollutants, contaminants,
substances, materials, wastes, constituents, compounds, chemicals, natural or
man-made elements or forces (including, without limitation, petroleum or any
by-products or fractions thereof, any form of natural gas, lead, asbestos or
asbestos-containing materials, building construction materials and debris,
polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon and other
radioactive elements, electromagnetic field and other types of radiation, sonic
forces, infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now or in the future form the basis of
liability under, any Environmental Laws.
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2.24. Consents. Except as set forth on Schedule 2.24, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by the Company of the Documents or any
documentation relating thereto, the consummation by the Company of the
transactions contemplated hereby or thereby, or the issuance, sale or delivery
of the Series D Preferred Stock and the Conversion Shares (other than such
notifications or filings required under applicable federal or state securities
laws, if any, which shall be made on a timely basis).
2.25. Insurance. Substantially all of the assets of the Company that are
of insurable character (including all material assets of the Company that are of
insurable character) are covered by insurance with reputable insurers against
risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage that are consistent with prudent industry practice. The Company is
not in default with respect to its obligations under any material insurance
policy maintained by it. Schedule 2.25 sets forth a list of all insurance
coverage carried by the Company, the carrier and the terms and amount of
coverage. All such policies and other instruments are in full force and effect
and all premiums with respect thereto have been paid. The Company has not failed
to give any notice or present any claim under any such insurance policy in due
and timely fashion or as required by any of such insurance policies or has not
otherwise, through any act, omission or non-disclosure, jeopardized or impaired
full recovery of any claim under such policies, and there are no claims by the
Company under any of such policies to which any insurance company is denying
liability or defending under a reservation of rights or similar clause. The
Company has not received notice of any pending or threatened termination of any
of such policies or any premium increases for the current policy period with
respect to any of such policies and the consummation of the transactions
contemplated by this Agreement will not result in any such termination or
premium increase.
2.26. Brokers. Except as set forth on Schedule 2.26, neither the Company
nor any of its officers, directors, employees or shareholders has employed any
broker or finder in connection with the transactions contemplated by this
Agreement.
2.27. Fraud and Abuse. (a) There are no judgments, orders, decrees,
citations, fines or penalties heretofore assessed against the Company, its
officers and directors, or, to the Company's best knowledge, any persons
providing professional health care services or management services pursuant to
any Contract, or in connection with the performance by any party to a Contract
of its obligations thereunder, under Health Care Laws, including but not limited
to, 42 U.S.C. ss. 1320a-7b, or the regulations promulgated thereunder pursuant
to such statutes, or comparable state statutes or regulations (collectively,
"Fraud and Abuse Laws"), including but not limited to statutes and regulations
prohibiting the following: (a) knowingly and willfully making or causing to be
made a false statement or representation of a material fact in any application
for any benefit or payment under the Medicare or Medicaid program;
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(b) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to such benefit
or payment; (c) failing to disclose the occurrence of any event affecting the
initial or continued right to any such benefit or payment on its own behalf or
on behalf of another, with intent to fraudulently secure such benefit or
payment; and (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering or paying such remuneration
(i) in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service or item for which payment may
be made in whole or in part by Medicare or Medicaid. To the Company's best
knowledge, none of the Company, its officers or directors, pursuant to any
Contract, or in connection with the performance by any party to a Contract of
its obligations thereunder, or, to the Company's best knowledge, any persons
providing healthcare services or management services have engaged in any
activities that are prohibited by the Fraud and Abuse Laws. There are no
judicial or administrative actions, claims, suits, proceedings or investigations
pending or, to the best of the Company's knowledge, threatened against the
Company, its officers or directors, or, to the Company's best knowledge, persons
providing professional health care services or management services for pursuant
to any Contract, or in connection with the performance by any party to a
Contract of its obligations thereunder, relating to any violation of the Fraud
and Abuse Laws.
(b) To the best knowledge of the Company, all billing practices by any
member of the Company Group to all third party payors, including, but not
limited to, the federal Medicare program, state Medicaid programs and private
insurance companies, have been in compliance in all material respects with all
applicable laws, regulations and policies of all such third party payors.
2.28. Use of Proceeds. Except as set forth on Schedule 2.28 or as
otherwise expressly contemplated by this Agreement, the Company is not required
pursuant to any Contract or otherwise to apply the proceeds received from Beacon
pursuant to the transactions contemplated hereby in any specified manner.
2.29. Previous Issuances. All shares of capital stock and other securities
issued by the Company prior to the Closing have been (i) issued in transactions
exempt from registration under the Securities Act, and all applicable state
securities or "blue sky" laws or (ii) registered under the Securities Act and
all applicable state securities or "blue sky" laws. The Company has not violated
the Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. The Company has not offered any of its capital stock, or
any other securities, for sale to, or solicited any offers to buy any of the
foregoing from the Company, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require registration under the
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Securities Act except for the offering pursuant to the Registration Statement of
the Company on Form S-1 filed with the SEC (as defined in Section 2.36) on March
4, 1996.
2.30. Real Property. The Company does not own any real property. Schedule
2.30 lists all real property leased by the Company. Except as set forth in
Schedules 2.10 and 2.30, the Company has leasehold title to its leased real
properties (collectively, the "Leased Real Properties"), in each case, free and
clear of all imperfections of title and all Encumbrances, except for (i) those
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of such property or irregularities in
title thereto that, individually and in the aggregate, do not materially impair
the use of such property, (ii) warehousemen's, mechanics', carriers',
landlords', repairmen's or other similar Encumbrances arising in the ordinary
course of business and securing obligations not yet due and payable, (iii) other
Encumbrances that individually and in the aggregate do not materially impair its
use of such property or its ability to obtain financing by using such asset as
collateral, (iv) Encumbrances created, granted or imposed by or upon any
landlord with respect to any real properties constituting Leased Real Properties
and (v) Encumbrances listed on Schedule 2.30 (encumbrances referenced in clauses
(i), (ii), (iii), (iv) and (v) collectively referred to as the "Permitted
Encumbrances"). To the best knowledge of the Company, other than as described on
Schedule 2.30, there are no intended public improvements that will result in any
charge being levied against, or in the creation of any Encumbrances upon, the
Leased Real Properties or any portion thereof. To the best knowledge of the
Company, there are no options, rights of first refusal, rights of first offer or
other similar rights with respect to the Leased Real Properties. Except as set
forth on Schedules 2.10 and 2.30, with respect to each lease of Leased Real
Property to which the Company is a party, so long as the Company performs all of
its obligations under such lease for Leased Real Property within applicable
notice and grace periods, (i) the rights of the Company under such lease shall
not be terminated and (ii) the Company's possession of such Leased Real Property
and the use and enjoyment thereof shall not be disturbed by any landlord,
overlandlord, mortgagee or other superior party. Except as set forth on the
Schedule 2.30, the Company is not obligated to purchase any Leased Real Property
and no Leased Real Property is required to be accounted for under GAAP as a
capitalized lease.
2.31 Medical Loss Ratio; Enrollees. The Medical Loss Ratio (as defined in
the letter from the Company to Beacon substantially in the form attached hereto
as Exhibit G (the "MLR Letter")) of the Company with respect to the fiscal
quarter ended March 31, 1997 was 95.4%. The number of Medicare Enrollees (as
defined in the MLR Letter) with respect to the fiscal quarter ended March 31,
1997, was 2,351.
2.32 Participating Physicians. The physicians listed on Schedule 2.32
comprise at least the number of physicians, in general and according to
specialty, reasonably necessary for the conduct of the Company's business as
currently conducted. Each of the physicians listed on Schedule 2.32 has (a)
entered into an
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employment agreement with a medical group which has executed and delivered a
Physician Services Organization Agreement with the Company (in which case the
Company is an intended third-party beneficiary), (b) executed and delivered a
participation agreement with the Company, a Company-owned physician association,
or an independent physician association, or (c) entered into a specialists
agreement, and each such agreement is in full force and effect and is
enforceable against the parties thereto in accordance with its terms.
2.33. Accounts Receivable. The accounts receivable and notes receivable
reflected on the books and records of the Company were and are bona fide
accounts receivable and notes receivable created in the ordinary and usual
course of business in connection with bona fide transactions and consistent with
past practice.
2.34. Investment Banking Services. Except as set forth on Schedule 2.34
hereto, the Company is not a party to any Contract that grants rights to any
third party with respect to the performance of investment banking services for
it, including, without limitation, with respect to its sale or a public
offering, including an initial public offering, of its securities.
2.35. Registration Rights. Except as required by the Registration Rights
Agreement or as set forth on Schedule 2.35, the Company is not under any
obligation to register under the Securities Act any of its presently outstanding
securities or any of its securities that may hereafter be issued.
2.36 SEC Reports. The Company has delivered or made available to Beacon
the registration statement of the Company filed with the Securities and Exchange
Commission (the "SEC") in connection with the registration of the Class B Common
Stock, and all exhibits, amendments and supplements thereto (collectively, the
"Company Registration Statement"), and each registration statement, annual and
quarterly report, proxy statement or information statement and all exhibits and
amendments thereto prepared by the Company or relating to the Company's
properties since the effective date of the Company Registration Statement, which
are set forth in Schedule 2.36, each in the form (including exhibits and any
amendment thereto) filed with the SEC (collectively, the "SEC Reports"). The SEC
Reports were filed with the SEC in a timely manner and constitute all forms,
reports and documents required to be filed by the Company under the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). As of their respective dates, the SEC Reports (i) complied
as to form in all material respects with the applicable requirements of the
Securities Laws and (ii) did 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 statements made therein, in light of the circumstances under which they
were made, not misleading, and as of the date hereof there is no fact or facts
not disclosed in the SEC Reports that relate specifically to the Company and
that individually or in the aggregate may have a Material Adverse Effect. There
is no unresolved violation asserted by any government authority with respect to
any of the SEC Reports.
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2.37. Disclosure. Neither this Agreement nor any certificate, instrument
or written statement furnished or made to Beacon by or on behalf of the Company
in connection with this Agreement contains an untrue statement of a material
fact or omits a state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is not fact that the Company
has not disclosed to Beacon or its counsel in writing and of which the Company
is aware which materially and adversely affects or which could reasonably be
expected to materially and adversely affect the business, financial condition,
operations, property or affairs of the Company or the ability of the Company to
perform its obligation under the Documents.
SECTION 3. Representations, Warranties and Covenants of Beacon. (a) Beacon
represents and warrants to the Company as of the date hereof and as of the
Closing as follows:
(i) Beacon is acquiring the Series D Preferred Stock to be purchased by it
under this Agreement for its own account, for investment and not with a view to
the distribution thereof within the meaning of the Securities Act.
(ii) Beacon understands that (A) the Series D Preferred Stock has not
been, and that the Conversion Shares will not be, registered under the
Securities Act or any state securities laws, by reason of their issuance by the
Company in a transaction exempt from the registration requirements thereof and
(B) the Series D Preferred Stock and the Conversion Shares may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from registration thereunder.
(iii) Beacon further understands that the exemption from registration
afforded by Rule 144 promulgated under the Securities Act depends on the
satisfaction of various conditions, and that, if applicable, Rule 144 may afford
the basis for sales only in limited amounts.
(iv) Beacon is an "Accredited Investor" (as defined in Rule 501(a) under
the Securities Act).
(v) Beacon is duly organized and validly existing under the laws of
Delaware and has all power and authority to enter into and perform the
Documents. Each of the Documents has been duly authorized by all necessary
action on the part of Beacon. Each of the Documents constitutes a valid and
binding agreement of Beacon enforceable against Beacon in accordance with its
terms except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally.
(vi) The execution, delivery and performance by Beacon of each of the
Documents and the consummation by Beacon of the transactions contemplated
thereby will not (A) violate any provision of law, statute, rule or regulation,
or any ruling, writ, injunction, order, judgment or decree of any court,
administrative agency or other
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governmental body applicable to it, or any of its properties or assets or (B)
violate its organizational documents.
(vii) Except with respect to filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), no permit, authorization,
consent or approval of or by, or any notification of or filing with, any person
(governmental or private) is required in connection with the execution, delivery
and performance by Beacon of the Documents, or the consummation by Beacon of the
transactions contemplated thereby.
(viii) Representatives of Beacon have had the opportunity to ask questions
and receive answers regarding the terms and conditions of the investment
contemplated hereby and have had access to information about the Company's
business.
SECTION 4. Certain Covenants.
4.1. Operation of the Business Prior to Closing. Between the date of this
Agreement and the Closing, unless otherwise agreed in writing by Beacon, the
Company shall:
(a) except as otherwise expressly allowed or required pursuant to the
terms of this Agreement, conduct its business and operations only in the
ordinary course in a manner consistent with past practice;
(b) preserve intact its current business organization, keep available the
services of its current officers, employees, and agents, and maintain the
relations and good will with all material suppliers, customers, licensors,
licensees, landlords, trade creditors, Employees, agents, and others having
material business relationships with the Company;
(c) confer with Beacon concerning operational matters of a material
nature;
(d) maintain in full force and effect the insurance described in Section
2.25 or insurance providing at least comparable coverage;
(e) maintain all the properties and assets of the business and operations
of the Company in the ordinary course consistent with past practice;
(f) maintain its books and records in the usual, regular and ordinary
manner, on a basis consistent with prior years;
(g) perform and comply with its obligations under all Contracts in the
ordinary course of business, consistent with past practice;
(h) furnish to Beacon copies of all financial statements and
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certificates and reports concerning operation of the business, as and when such
financial statements, certificates and reports are delivered to any other person
or entity;
(i) report periodically to Beacon concerning the status and operation of
the business and operations of the Company; and
(j) provide written notice to Beacon of any investigation, inquiry, or
request for information by any court or any governmental authority, federal or
state, regarding the Company's compliance with Health Care Laws within 15 days
of the date the Company first becomes aware of any such investigation, inquiry,
or request for information.
4.2. Conduct of the Company Prior to Closing. Except as expressly
contemplated by this Agreement or with the prior written consent of Beacon,
during the period from the date of this Agreement to the Closing, the Company
shall not:
(a) amend its articles of incorporation or by-laws or the terms of any of
its securities or any agreements relating thereto;
(b) except as set forth on Schedule 4.2, issue, pledge or sell, or
authorize the issuance, pledge or sale of, additional shares of capital stock or
other securities of any class or series, including, without limitation,
securities exchangeable for or convertible into capital stock of any class or
series, or any calls, commitments, rights, warrants or options to acquire any
securities or capital stock;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise with respect to any of its capital
stock;
(d) split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock, or any of its other securities;
(e) except for increases in salary, wages or benefits of officers (other
than executive officers) or employees of the Company in the ordinary course of
business in accordance with past practice, increase the compensation or benefits
payable or to become payable to any Employee, or pay any benefit not required by
any existing plan or arrangement or grant any severance or termination pay to
(except pursuant to existing agreements or policies), or enter into or amend any
Employee Agreement or establish, adopt, enter into, or amend or fund any
payments owing under, or accelerate the vesting of any benefits under, any
Company Benefit Plan, except in each case to the extent required by applicable
law;
(f) except as set forth on Schedule 4.2, acquire, sell, lease or dispose
of any assets which are material to the Company, or enter into any commitment to
do any of the foregoing or enter into any other material commitment or
transaction;
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(g) (i) create, incur, assume or prepay any indebtedness for borrowed
money (including obligations in respect of capital leases) except for short-term
debt in the ordinary course of business consistent with past practice under
existing lines of credit, (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or (iii) make any loans, advances or capital
contributions to, or investments in, or enter into any "keep well" arrangements
or other agreement to maintain the financial condition of, any other person;
(h) except as set forth on Schedule 4.2, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof;
(i) pay, discharge or satisfy any claims or liabilities, except for the
payment, discharge or satisfaction of liabilities in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof or waive release, grant, or transfer any rights of
material value or modify in any material respect any existing Contract, other
than in the ordinary course of business consistent with past practice;
(j) (i) make any material Tax election, (ii) settle or compromise any
material Tax Liability or (iii) extend or waive any statute of limitations in
respect of Taxes;
(k) make or agree to make any capital expenditures that exceed, singly or
in the aggregate, $75,000;
(l) mortgage, pledge or subject to any Encumbrance any of its properties
or assets, tangible or intangible;
(m) amend, modify or waive any provisions of any Contract;
(n) take any action that would cause any of the representations and
warranties contained in Section 2 to be untrue as the date made or any future
date or would result in any of the conditions to the Closing not being
fulfilled; or
(o) authorize or agree in writing or otherwise to take any of the
foregoing actions.
4.3. Third Party Consents Prior to Closing. Prior to the Closing, the
Company shall use commercially reasonable efforts to obtain all consents
required from third parties which are party to Contracts with the Company to the
transactions contemplated by the Documents.
4.4. No Negotiation Prior to Closing. Until such time, if any, as this
Agreement
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is terminated pursuant to Section 7, the Company will not, directly or
indirectly, and will not permit any of its representatives to, directly or
indirectly, solicit, initiate, or encourage any inquiries, offers or proposals
from, discuss or negotiate with, execute any agreement regarding or provide any
information to, any person (other than Beacon) relating to any transaction
involving an equity investment in the Company, the sale of the business or
operations of the Company or a substantial amount of the property or assets of
the Company, or of any of the capital stock or any other equity securities of
the Company (including by way of an initial public offering), or any merger,
consolidation, business combination, liquidation, recapitalization, dissolution
or similar transaction involving the Company or any other transaction the
consummation of which would or could reasonably be expected to impede, interfere
with, prevent or materially delay the transactions contemplated hereby or that
would or could reasonably be expected to materially dilute the benefits to
Beacon of the transactions contemplated by the Documents (collectively,
"Transaction Proposals"). If any such inquiries or Transaction Proposals are
received by, or any such information is requested from or any such negotiations
or discussions are sought to be initiated within the Company, then the Company
will promptly notify Beacon of the nature, terms and status of the foregoing and
the identity of the inquiring party and provide Beacon with a copy of all
written materials provided in connection with such Transaction Proposal.
4.5. Access to Records Prior to Closing. During the period commencing on
the date of this Agreement and continuing through the Closing, the Company shall
(i) afford to Beacon and its representatives full access, during normal business
hours, upon reasonable advance notice, with due regard to its ongoing
operations, to the personnel, properties, contracts, books and records, and
other documents and data of the Company, (ii) furnish Beacon and its
representatives with copies of all such contracts, books and records (including,
but not limited to, Tax Returns), and other existing documents and data as
Beacon and its representatives may reasonably request, and (iii) furnish Beacon
and its representatives such additional information, operating, and other data
and information as Beacon and its representatives may reasonably request. No
investigation or receipt of information shall affect any representation or
warranty of the Company contained in this Agreement or the conditions to the
obligations of Beacon specified in this Agreement.
4.6. Post-Closing Covenants. So long as Beacon owns 5% or more of the
outstanding shares of Series D Preferred Stock or 5% or more of the outstanding
Common Stock on an as converted basis, the Company agrees that:
(a) Inspection of Property; Book and Records. The Company shall permit
representatives of Beacon to visit and inspect any of the properties of the
Company and its Subsidiaries and to discuss the affairs, finances and accounts
of the Company and its Subsidiaries with, and to make proposals and furnish
advice with respect thereto to, the principal officers of the Company, all at
such reasonable times, upon reasonable notice and as often as Beacon may
reasonably request; provided, however, that neither the Board of Directors nor
the officers of the Company shall be
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under any obligation to take any action with respect to any proposals made or
advice furnished by Beacon, other than to take such proposals or advice
seriously and give due consideration thereto. The Company shall permit
representatives of Beacon to inspect, upon reasonable notice, during normal
business hours and with due regard to the Company's ongoing operations, and as
often as Beacon may reasonably request, and the Company shall keep and make
available at its principal offices, (i) copies of the Company's federal, state,
and local income tax returns with respect to the six most recent fiscal years,
or for such longer period required by any waivers extending periods of
limitation to assess any federal, states or local Taxes, (ii) the audited
financial statements of the Company for the six most recent fiscal years, or for
such longer period required by any waivers extending periods of limitation to
assess any federal, state or local Taxes, and (iii) the Company's books and
records for the six most recent fiscal years, or for such longer period required
by any waivers extending periods of limitation to assess any federal, state or
local Taxes.
(b) System of Accounting. The Company shall maintain its books of account
and other financial and corporate records in accordance with good business and
accounting practices and the financial condition of the Company.
(c) Maintenance of Corporate Existence, etc. The Company shall maintain in
full force and effect its corporate existence, rights, governmental approvals
and franchises and all licenses and other rights to use patents, processes,
trademarks, trade names or copyrights owned or possessed by it and deemed by it
to be material to the conduct of its business.
(d) Compliance with Laws. The Company shall comply with all applicable
laws, rules, regulations and orders.
(e) Maintenance of Properties and Leases. The Company shall keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all reasonably needful and proper, or
legally required, repairs, renewals, replacements, additions and improvements
thereto; and the Company shall comply at all times with each provision of all
leases to which it is a party or under which it occupies, or has possession, of,
property.
(f) Insurance. The Company shall keep its assets that are of an insurable
character, if any, insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and other hazards and risks and
liability to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated. The Company shall maintain
the directors' and officers' liability insurance described in Section 5(i).
(g) Licenses and Permits. The Company shall use its best efforts to obtain
and maintain all federal, state, local and foreign governmental licenses,
permits and qualifications material to and necessary in the conduct of business
as proposed to be conducted.
(h) Compliance with Contracts. The Company shall comply with
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all material obligations that it incurs pursuant to any contract or agreement,
whether oral or written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto.
(i) Confidentiality Agreements; Shareholder Letters. The Company shall use
its best efforts to obtain a confidentiality agreement from its future officers
and other key Employees determined by the Board of Directors who will have
access to confidential information of the Company upon their employment. The
Company shall not amend or waive any provision of any Shareholders Letter (as
defined in Section 4.6(p)) without the prior written consent of Beacon.
(j) Disclosure of Investment. The Company shall not, directly or
indirectly, (i) except as may be necessary in connection with a request by, or
filing with, a governmental agency, regulatory or supervisory authority or court
or as required by law or GAAP, disclose the transactions contemplated by the
Documents or any of the terms thereof, (ii) use in advertising or publicity the
name of Beacon, or any partner or employee of Beacon or any of its respective
affiliates or (iii) represent, directly or indirectly, that any product or
service provided by the Company has been approved or endorsed by Beacon,
without, in the case of any of foregoing circumstances, the prior written
consent of Beacon; provided, however, the Company may orally disclose: (i) that
Beacon is a shareholder of the Company and (ii) the percentage of the
outstanding shares of capital stock of the Company held by Beacon.
(k) Use of Proceeds. The Company shall use the proceeds from the sale of
Series D Preferred Stock hereunder as set forth on Schedule 4.6(k).
(l) Investment Banking Services. The Beacon Group Capital Services,
L.L.C., or another affiliate of Beacon, shall, subject to approval of the
Company's Board of Directors, have the opportunity to compete with other
qualified firms to perform all investment banking services for the Company for
which an investment banking firm is retained (including, without limitation,
with respect to the sale of the Company), in each case, upon customary terms,
including compensation, consistent with an arm's-length transaction. The rights
of Beacon and the obligations of the Company to Beacon under this Section 4.6(l)
shall terminate at such time as Beacon, together with its affiliates, in the
aggregate, owns less than 5% of the outstanding Common Stock of the Company (on
a fully diluted as converted basis).
(m) Share Issuance. The Company shall not issue, sell or grant any capital
stock or other equity securities unless as a condition to such issuance, sale or
grant the purchaser or grantee executes and agrees to be bound by the
Shareholders' Agreement.
(n) Legends. The Company shall cause all certificates representing shares
of capital stock of the Company owned by any shareholder who is party to the
Shareholders' Agreement to bear the legends required by Section 12 of the
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Shareholders' Agreement.
(o) Bank Facility. The Company shall use commercially reasonable best
efforts to ensure that (i) the Company's current credit facility provided by
NationsBank, N.A. and (ii) the guaranty of such facility by Medical Mutual
Liability Insurance Society of Maryland shall each continue to be in full force
and effect through December 31, 1997.
(p) Shareholders Letter. The Company shall use its best efforts to cause
physicians who are shareholders to execute and deliver a shareholders letter in
the form of Exhibit F hereto (the "Shareholders Letter") as promptly as
practicable after the Closing.
SECTION 5. Conditions to Beacon's Obligation to Close. The obligations of Beacon
to consummate the Purchase shall be subject to the satisfaction or waiver by
Beacon on or prior to the Closing of each of the following conditions:
(a) The Company shall have complied in all material respects with all its
agreements and covenants contained herein to be performed at or prior to the
Closing.
(b) All of the representations and warranties of the Company contained
herein shall be true and correct in all material respects on and as of the
Closing date with the same effect as though made on and as of the Closing date.
(c) Beacon shall have received a certificate of the Company, dated as of
the Closing date and signed by the Chief Executive Officer of the Company
certifying as to the fulfillment of the conditions set forth in Sections 5(a)
and 5(b).
(d) All of the actions contemplated by Section 1.3 shall have occurred.
(e) No statute, rule or regulation or order of any court or any
governmental authority shall be in effect, and no proceedings have been
instituted to obtain such an order, that, in any case, restrains, enjoins, makes
illegal or otherwise prohibits the transactions contemplated hereby or the
continuance of the Company's business in substantially the manner in which it is
now conducted.
(f) No event or change shall have occurred that in Beacon's sole
reasonable judgment, individually or in the aggregate, has had, or may have, a
Material Adverse Effect.
(g) Beacon shall be satisfied with the results of its legal and business
due diligence.
(h) The board of directors of the Company shall consist of not
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more than twenty members, and Thomas G. Mendell (or such other person as Beacon
shall designate) and Eric R. Wilkinson shall be members of the Board of
Directors of the Company and the executive committee of the Board of Directors
of the Company and shall hold such positions as of the Closing.
(i) The Company shall have obtained, with financially sound and reputable
insurers, directors' and officers' liability insurance in the amount of
$3,000,000 per occurrence and $5,000,000 in the aggregate and, as of the
Closing, such insurance shall be in full force and effect.
(j) Beacon, St. Joseph Medical Center, Inc., University Care, L.L.C. and
Genesis Health Ventures, Inc. ("GHV") shall have executed and delivered a letter
agreement with the Company governing the priority of their various registration
rights in form and substance satisfactory to Beacon.
(k) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(l) All actions by or in respect of or filings with any governmental body,
agency, official or authority required to permit the consummation of the Closing
shall have been taken, made or obtained.
(m) GHV, Genesis Holdings, Inc. and the Company shall have executed and
delivered amendments, in form and substance satisfactory to Beacon, to the
Convertible Subordinated Note dated January 31, 1997 and the related Note
Purchase Agreement (the "GHV Purchase Agreement") to provide that no Maturity
Date (as defined therein) shall occur as a result of the Closing or the
Subsequent Closing.
(n) University Care, L.L.C. or another purchaser acceptable to Beacon
shall have purchased all of the shares of Series B Preferred owned by Med-Lantic
Management Services, Inc. on terms and conditions satisfactory to Beacon.
(o) The GHV Purchase Agreement shall have been amended to eliminate the
rights of GHV and its affiliates pursuant to Sections 6.3, 6.5 and 6.6 thereof
and the Stock Purchase Agreement between GHV and the Company dated as of
September 4, 1996, shall have been amended to eliminate the rights of GHV and
its affiliates pursuant to Section 6.4 thereof.
(p) The waiver application of St. Joseph's Medical Center relating to fees
charged to the Company or its affiliates shall have been approved by the
Maryland Health Services Cost Review Commission and such approval shall be
final, non-appealable and not subject to challenge.
(q) The existing employment agreements of Stewart B. Gold, Scott Rifkin
and Alan Kimmel shall have been amended in form and substance satisfactory to
Beacon to provide for elimination of their contractual right to participate in
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the bonus pool and to provide such other terms and conditions including those
set forth in a schedule initialed by Beacon and the parties as of the date
hereof.
(r) The MLR Letter, in form and substance satisfactory to Beacon, shall
have been executed and delivered by the parties thereto.
SECTION 6. Survival of Representations, Warranties and Covenants, etc. All
representations and warranties in this Agreement shall survive the Closing until
the third anniversary of the date of the Closing, except to the extent a Claim
Notice (as defined in Section 8.3) shall have been given prior to such date with
respect to a breach of a representation or warranty, in which case such
representation or warranty shall survive until such claim is resolved and shall
in no way be affected by any investigation or knowledge of the subject matter
thereof made by or on behalf of Beacon; provided, however, that (x) the
representations and warranties set forth in Sections 2.1, 2.2, 2.3, 2.4 and 2.5
shall survive the Closing indefinitely and (y) the representations and
warranties set forth in Sections 2.19, 2.20, 2.22, 2.23, 2.27 and 2.37 shall
survive the Closing until the expiration of the applicable statute of
limitations (except to the extent a Claim Notice shall have been given prior to
such date with respect to a breach of a representation or warranty, in which
case such representation or warranty shall survive until such claim is
resolved). All agreements contained herein shall survive indefinitely until, by
the terms of this Agreement, they are no longer in effect.
SECTION 7. Termination.
7.1. Termination. The obligations of the parties hereunder to effect the
Purchase may be terminated (i) by the mutual written consent of the Company and
Beacon or (ii) by any party in writing, without liability to such party on
account of such termination (provided the terminating party is not otherwise in
breach and/or default of this Agreement), if the Closing shall not have occurred
on or before July 31, 1997.
7.2. Effect of Termination. Termination pursuant to Section 7.1 shall
terminate all obligations of the parties to effect the Purchase and all
obligations or liabilities relating thereto except for liabilities for breach by
any party of its obligations under this Agreement.
SECTION 8. Indemnification.
8.1. General Indemnification. The Company shall indemnify, defend and hold
Beacon, its affiliates, their respective officers, directors, partners, members,
shareholders, employees, agents, representatives, successors and assigns (each,
a "Beacon Entity") harmless from and against all Losses (as defined in Section
8.2) incurred or suffered by a Beacon Entity (whether incurred or suffered
directly or indirectly through ownership of Common Stock or Preferred Stock or
any other securities of the Company) arising or resulting from the breach of any
of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in any certificate or other instrument delivered pursuant
hereto including,
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without limitation, the Documents. Beacon shall indemnify, defend and hold the
Company, its affiliates, their respective officers, directors, shareholders,
employees, agents, representatives, successors and assigns harmless against all
Losses arising from the breach of any of its representations, warranties,
covenants or agreements in this Agreement or in any certificate or other
instrument delivered pursuant hereto, including, without limitation, the
Documents.
8.2. Indemnification Principles. For purposes of this Section 8, "Losses"
shall mean each and all of the following items: claims, losses, liabilities,
obligations, payments, damages, charges, judgments, fines, penalties, amounts
paid in settlement, costs and expenses (including, without limitation, interest
that may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts), provided,
that all calculations of Losses with respect to an indemnified claim shall be
net of any insurance proceeds and tax benefits actually realized by the
indemnified party with respect to such claim. Any indemnification payment by the
Company to Beacon pursuant to this Section 8 shall include an additional amount
so that Beacon suffers no Loss as a result of any diminution in the book value
of the shareholder's equity related to its investment under the Agreement as a
result of such indemnification payment (it being agreed that if a Loss occurs
after an initial public offering of the Company, any such diminution in the book
value of Beacon's shareholder's equity shall not be measured in terms of the
multiple to book value at which the Company's shares are traded). Any payment by
the Company to Beacon pursuant to this Section 8, shall be treated for federal
income tax purposes as an adjustment to the price paid by Beacon for the Series
D Preferred Stock pursuant to this Agreement, except as otherwise required by
law. Notwithstanding any other provision of this Section 8, (i) the Company
shall not be required to provide indemnification for any breaches of the
Company's representations or warranties unless the aggregate of all amounts for
which such indemnification is due exceeds $250,000, in which case the Company
shall be liable for indemnification for all such amounts from first dollar and
(ii) in no event shall the Company be required to provide indemnification for
breaches of its representations and warranties for any individual claim of less
than $15,000.
8.3. Claim Notice. A party seeking indemnification under this Section 8
shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each Claim
Notice shall specify the nature of the claim, the applicable provision(s) of
this Agreement or other instrument under which the claim for indemnity arises,
and, if possible, the amount or the estimated amount thereof. No failure or
delay in giving a Claim Notice (so long as the same is given prior to expiration
of the representation or warranty upon which the claim is based) and no failure
to include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises shall affect the obligation of
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the party from whom indemnity is sought except to the extent such party is
materially prejudiced by such failure or delay.
8.4. Claim Procedure. (a) If any indemnified party hereunder determines to
seek indemnification under this Section 8 with respect to Losses resulting from
the assertion of liability by third parties, such indemnified party shall give
notice to the indemnifying party hereunder within 10 days of such indemnified
party becoming aware of any such Losses or of facts upon which any claim for
such Losses will be based; the notice shall set forth such material information
with respect thereto as is then reasonably available to such indemnified party.
In case any such liability is asserted against such indemnified party, and such
indemnified party notifies the indemnifying party thereof, the indemnifying
party will be entitled, if it so elects by written notice delivered to such
indemnified party within 10 days after receiving such indemnified party's
notice, to assume the defense thereof with counsel satisfactory to such
indemnified party, in which case, the indemnifying party will not be liable to
the indemnified party under this Section 8.4. for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the following sentence or (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party. Notwithstanding the foregoing, (A) such
indemnified party shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expenses of such
indemnified party unless such indemnified party shall reasonably determine that
there is a conflict of interest between or among such indemnified party and the
indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (B) such
indemnified party shall not have any obligation to give any notice of any
assertion of liability by a third party unless such assertion is in writing, (C)
the rights of such indemnified party to be indemnified hereunder in respect of
any Losses that may or do result from the assertion of liability by third
parties shall not be adversely affected by its failure to give notice pursuant
to the foregoing unless, and, if so, only to the extent that, the indemnifying
party is materially prejudiced thereby, and (D) the indemnifying party's
obligations to such indemnified party under this Section 8 shall not terminate
until such indemnified party's claims have been finally satisfied to such
indemnified party's sole satisfaction. In the event that the indemnifying party,
within 10 days after receipt of the aforesaid notice of a claim hereunder, fails
to assume the defense of such indemnified party against such claim, such
indemnified party shall have the right to undertake the defense, compromise, or
settlement of such action on behalf of and for the account, expense, and risk of
the indemnifying party. Notwithstanding anything in this Section 8 to the
contrary, if there is a reasonable probability that a claim may materially
adversely affect such indemnified party, (x) such indemnified party shall have
the right to participate in such defense, compromise, or settlement and (y) the
indemnifying party shall not, without such indemnified party's written consent
(which consent shall not be
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unreasonably withheld), settle or compromise any of such claims, or consent to
entry of any judgment in respect thereof unless such settlement, compromise, or
consent includes as an unconditional term thereof the giving by the claimant or
the plaintiff to such indemnified party a release from all liability in respect
of such claim. With respect to any assertion of liability by a third party that
results in any claim for indemnification hereunder, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion.
(b) In the event that an indemnified party asserts the existence of a
claim with respect to Losses (but excluding claims resulting from the assertion
of liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 8.4(b), specify the nature and amount of the claim asserted, and
indicate the date on which such assertion shall be deemed accepted and the
amount of the claim deemed a valid claim (such date to be established in
accordance with the next sentence). If the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing in its intent to contest such
assertion of such indemnified party, such assertion shall be deemed accepted and
the amount of claim shall be deemed a valid claim. In the event, however, that
the indemnifying party contests the assertion of a claim by giving such written
notice to such Indemnified party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. In the event that
litigation shall arise with respect to any such claim, the prevailing party
shall be entitled to reimbursement of costs and expenses incurred in connection
with such litigation including attorney fees, if the parties hereto, acting in
good faith, cannot reach agreement with respect to such claim within ten days
after such notice.
SECTION 9. Subsequent Closing. (a) Subject to Section 9(b), Beacon shall
purchase from the Company, and the Company shall sell to Beacon free and clear
of all Encumbrances, 1,000,000 shares of series D Preferred Stock (the
"Subsequent Shares") for an aggregate purchase price of $10,000,000 (the
"Subsequent Purchase Price"). The closing of the purchase and sale of the
Subsequent Shares (the "Subsequent Closing") shall take place on June 30, 1998
(or such earlier date as the parties may agree), provided that the conditions
set forth in Section 9(b) shall have been satisfied or waived on or prior to
such date. At the Subsequent Closing, the Company shall deliver to Beacon a
certificate or certificates representing the Subsequent Shares registered in the
name of Beacon or an affiliated nominee. Delivery of such certificates to Beacon
shall be made against receipt by the Company from Beacon of the Subsequent
Purchase Price, which shall be paid by wire transfer to an account designated at
least two business days prior to the Subsequent Closing by the Company. Upon
payment of the Subsequent Purchase Price, the Subsequent Shares shall be fully
paid and non-assessable. The parties acknowledge and agree that the conversion
ratio for the Subsequent Shares as of the Subsequent Closing shall be determined
by reference to the conversion matrix set forth in the letter agreement between
the Company and Beacon dated as of the date hereof.
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(b) The obligations of Beacon to consummate the Subsequent Closing shall
be subject to the satisfaction or waiver by Beacon on or prior to the Subsequent
Closing of each of the following conditions:
(i) The Closing shall have occurred;
(ii) The Company shall have complied in all material respects with
all of its agreements and covenants contained in the Documents;
(iii) No event or change shall have occurred that, individually or in
the aggregate, has had, or may have, a material adverse effect on the business,
assets, liabilities, properties, condition (financial or otherwise), prospects,
operations or results of operations of the Company;
(iv) All actions by or in respect of, or filings with, any
governmental body, agency, official or authority required to permit the
consummation of the Subsequent Closing shall have been taken, made or obtained
(including the expiration or termination of any applicable waiting periods under
the HSR Act);
(v) No statute, rule or regulation or order of any court or any
governmental authority shall be in effect, and no proceedings have been
instituted to obtain such an order, that, in any case, restrains, enjoins, makes
illegal or otherwise prohibits the transactions contemplated by the Subsequent
Closing; and
(vi) Beacon shall have received from the Company's counsel an opinion
addressed to Beacon, dated as of the Subsequent Closing, satisfactory in form
and substance to Beacon.
(c) If prior to June 30, 1998 the Company notifies Beacon in writing (i)
that all or a portion of an acquisition or capital expenditure by the Company
requiring equity capital of the Company in excess of $750,000, which is not
contemplated by the Company's operating plan as of the date hereof, a copy of
which is attached hereto as Exhibit H, has been approved by the Company's Board
of Directors and the Company will be unable to consummate such acquisition or
capital expenditure (without the use of cash already contemplated in the
Operating Plan) unless the Subsequent Closing occurs, (ii) that the indebtedness
described on Schedule 9(c) hereto has become due and payable and the Company has
been unable to refinance such indebtedness and has no sources of funds available
to it to repay such indebtedness at maturity (other than cash or cash
equivalents held by the Company for application pursuant to its Operating Plan),
or (iii) that the Company requires additional equity capital to satisfy its
obligations to redeem any shares of Series D Preferred redeemed by Beacon
pursuant to Article IV.F.2(f) of the Restated Articles, then Beacon shall permit
the Subsequent Closing to occur on the date requested by the Company (which date
may be prior to June 30, 1998) to the extent, but only to the extent, the
Company requires proceeds of such portion of the Subsequent Closing for the
purposes described in clauses (i), (ii) or (iii), provided that (x) the
conditions set forth in Section 9(b) must still be satisfied or
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<PAGE>
waived by Beacon prior to such date and (y) the Company actually uses the
proceeds of the Subsequent Closing for such acquisition, repayment or
redemption. Any Subsequent Shares not purchased by Beacon pursuant to this
Section 9(c) shall be purchased by Beacon at the June 30, 1998 Subsequent
Closing, subject to the terms and conditions of Sections 9(a) and 9(b).
SECTION 10. Remedies. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by any party hereto,
Beacon, with respect to a breach by the Company, and the Company, with respect
to a breach by Beacon, may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement.
SECTION 11. Expenses. Simultaneously with the Closing, the Company shall pay to
Beacon the lesser of (i) 100% of the documented out-of-pocket expenses incurred
by Beacon in connection with the transactions contemplated hereby and its due
diligence investigation thereof, including, but not limited to, fees and
expenses of Beacon's legal counsel, accountants and consultants or (ii)
$400,000. Beacon agrees to use commercially reasonable efforts to limit such
expenses in the aggregate to not more than $350,000.
SECTION 12. Taxes. The Company shall pay any transfer, documentary, stamp or
other similar Taxes that may be determined to be payable in connection with the
execution and delivery and performance of this Agreement, and the Company shall
pay any Taxes in respect of the issuance of the Series D Preferred Stock and the
Conversion Shares to Beacon.
SECTION 13. Further Assurances. At any time or from time to time after the
Closing, the Company, on the one hand, and Beacon, on the other hand, agree to
cooperate with each other, and at the request of the other party, to execute and
deliver any further instruments or documents and to take all such further action
as the other party may reasonably request in order to evidence or effectuate the
consummation of the transactions contemplated hereby relating to the Purchase
and to otherwise carry out the intent of the parties hereunder.
SECTION 14. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the Company and Beacon and their respective successors, permitted
assigns, heirs and personal representatives. In addition, and whether or not any
express assignment has been made, except as otherwise expressly stated in this
Agreement, the provisions of this Agreement that are for Beacon's benefit as a
purchaser or holder of Series D Preferred Stock are also for the benefit of, and
enforceable by, any subsequent holder of such Series D Preferred Stock and/or
Conversion Shares.
SECTION 15. Entire Agreement. This Agreement, the other writings referred to
herein
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<PAGE>
or delivered pursuant hereto that form a part hereof, and the binding
obligations of the Company and Beacon set forth in that certain commitment
letter dated May 2, 1997 contain the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto.
SECTION 16. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
(i) if to the Company, to:
Doctors Health System, Inc.
10451 Mill Run Circle
Owings Mills, Maryland 21117
Telecopy: (410) 654-5800
Attention: President and Chief Executive
Officer
and
Director of Legal Services
(ii) if to Beacon, to:
The Beacon Group III - Focus Value Fund, L.P.
399 Park Avenue
New York, New York 10022
Telecopy: (212) 339-9109
Attention: Eric R. Wilkinson
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8587
Attention: David N. Shine, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been given when received.
SECTION 17. Amendments. The terms and provisions of this Agreement may be
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and Beacon.
SECTION 18. Counterparts. This Agreement may be executed in any number of
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<PAGE>
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 19. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
SECTION 20. Nouns and Pronouns. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
SECTION 21. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law.
SECTION 22. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Preferred
Stock Purchase Agreement as of the date first above written.
DOCTORS HEALTH SYSTEM, INC.
By: /s/ Stewart B. Gold
_____________________________________
Name: Stewart B. Gold
Title: President and Chief Executive
Officer
THE BEACON GROUP III -FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, LLC
By: Focus Value GP, Inc.
By: /s/ Eric R. Wilkinson
_____________________________________
Eric R. Wilkinson
Managing Director
-39-
Exhibit 10.2
AMENDMENT TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT, dated as of July
15, 1997, by and between DOCTORS HEALTH SYSTEM, INC., a Maryland corporation
(the "Company") and THE BEACON GROUP III--FOCUS VALUE FUND, L.P., a Delaware
limited partnership ("Beacon").
WHEREAS, the parties have entered into a Preferred Stock
Purchase Agreement dated July 7, 1997 (the "Purchase Agreement"); and
WHEREAS, the parties desire to amend the Purchase Agreement;
ACCORDINGLY, the parties hereto hereby agree as follows:
1. The last sentence of Section 2.3 of the Purchase
Agreement is hereby deleted and the following is inserted in lieu thereof:
"2.3. Capitalization. (a) The Company is authorized to issue 20,700,000 shares
of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
10,000,000 shares of Class B Common Stock, par value $.01 per share (the "Class
B Common Stock"), 29,050,000 shares of Class C Common Stock, par value $.01 per
share (the "Class C Common Stock" and, together with the Class A Common Stock
and the Class B Common Stock, the "Common Stock"), 1,000,000 shares of Series A
Convertible Preferred Stock, par value $5.00 per share (the "Series A Preferred
Stock"), 355,556 shares of Series B Convertible Preferred Stock, par value
$11.25 per share (the "Series B Preferred Stock"), 1,500,000 shares of Series C
Convertible Preferred Stock, par value $17.50 per share (the "Series C Preferred
Stock"), and 1,000,000 shares of Preferred Stock. Upon the filing of and
acceptance of the Restated Articles with the Department of Assessments and
Taxation of the State of Maryland, the Company will be authorized to issue
20,700,000 shares of Class A Common Stock; 10,000,000 shares of Class B Common
Stock; 29,050,000 shares of Class C Common Stock; 1,000,000 shares of Series A
Preferred Stock; 438,068 shares of Series B Preferred Stock; 1,500,000 shares of
Series C Preferred Stock; and 5,750,000 shares of Series D Preferred Stock (any
combination of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock may be referred to
herein as "Preferred Stock"). Immediately following the Closing, 810,000 shares
of Class A Common Stock will be issued and outstanding, 2,634,448 shares of
Class B Common Stock will be issued and outstanding, no shares of Class C Common
Stock will have been issued and no such shares will be outstanding, 1,000,000
shares of Series A Preferred Stock will be issued and outstanding, 438,068
shares of Series B Preferred Stock will be issued and outstanding, 571,428
shares of Series C Preferred Stock will be issued and outstanding, and 2,000,000
shares of Series D Preferred Stock will be issued and outstanding as of the
Closing. Three Million shares of Series D Preferred Stock will be issued and
outstanding as of the Subsequent Closing (as defined in Section 9(a))."
2. Section 2.3(c) of the Purchase Agreement is
hereby amended by deleting Section 2.3(c) and inserting in lieu thereof:
"(c) The shares of Class C Common Stock issuable
upon conversion of the Series D Preferred Stock issued to Beacon on the date of
the Closing under this Agreement represent (assuming 3,000,000 shares of
Series D Preferred Stock outstanding), in the aggregate, 28.7% of the
outstanding Common Stock of the Company on the date of the Closing on a
fully diluted basis (assuming for purposes of calculating full dilution,
all securities convertible into, or exchangeable or exercisable for, shares
of Common Stock (collectively, "Common Stock Equivalents") as having been
converted, exchanged, or exercised) and the voting power of such issued shares
will represent, in the aggregate, 28.7% of the total number of votes able to be
cast on any matter by all voting securities of the Company (other than any
matter the holders of Class A Common Stock, Class B Common Stock, Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock are
entitled by law or pursuant to the Restated Articles to vote on as a separate
class and any matter to be voted on by the holders of shares of Series D
Preferred Stock as a separate class) on the date of the Closing on a fully
diluted basis (treating, for purposes of calculating full dilution, all
Common Stock Equivalents as having been converted, exchanged, or exercised)."
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment
to Stock Purchase Agreement as of the date and year first above written.
DOCTORS HEALTH SYSTEM, INC.
By:__________________________
Stewart B. Gold, President
THE BEACON GROUP III--FOCUS
VALUE FUND, L.P.
By: Beacon Focus Value Investors, L.L.C.
By: Focus Value, GP, Inc.
By:__________________________
Eric R. Wilkinson,
Managing Director
Exhibit 10.3
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
BY AND AMONG
UNIVERSITYCARE, L.L.C.
DOCTORS HEALTH SYSTEM, INC.
GENESIS HEALTH VENTURES, INC.
AND
MED-LANTIC MANAGEMENT SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. STOCK PURCHASE AND CLOSING.................................................................... 2
Section 1.1 Purchase of the Shares............................................................... 2
Section 1.2 Purchase Price....................................................................... 2
Section 1.3 Closing.............................................................................. 2
Section 1.4 Abandonment Date..................................................................... 3
Section 1.5 Additional Covenants; Rights of the Series B Stock................................... 3
Section 1.6 Purchase Agreement Assumption........................................................ 4
Section 1.7 Piggyback Registration............................................................... 5
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
OF DOCTORS.................................................................................... 5
Section 2.1 Organization, Qualification and Corporate Power...................................... 5
Section 2.2 No Breach............................................................................ 6
Section 2.3 Title to Properties.................................................................. 6
Section 2.4 Compliance With Law.................................................................. 6
Section 2.5 Ownership of Capital Stock........................................................... 6
Section 2.6 Capital Stock........................................................................ 7
Section 2.7 The Series B Stock................................................................... 7
Section 2.8 Validity............................................................................. 7
Section 2.9 Financial Statements................................................................. 7
Section 2.10 Absence of Undisclosed Liabilities................................................... 8
Section 2.11 Events Subsequent to the Audited Financial Statements................................ 8
Section 2.12 Outstanding Debt..................................................................... 9
Section 2.13 Litigation and Investigations........................................................ 9
Section 2.14 Taxes................................................................................ 10
Section 2.15 Employees............................................................................ 10
Section 2.16 Insurance Coverage................................................................... 10
Section 2.17 Contracts and Other Commitments...................................................... 10
Section 2.18 Fees and Commissions................................................................. 11
Section 2.19 Disclosure........................................................................... 11
Section 2.20 Employee Benefit Plans............................................................... 11
Section 2.21 Certain Agreements of Officers and Employees......................................... 12
Section 2.22 Transactions with Affiliates......................................................... 12
Section 2.23 Securities Act of 1933............................................................... 12
Section 2.24 Insurance............................................................................ 12
Section 2.25 Books and Records.................................................................... 12
Section 2.26 Fraud and Abuse...................................................................... 13
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MMS......................................................... 14
Section 3.1 Organization, Qualification and Corporate Power...................................... 14
Section 3.2 No Breach............................................................................ 14
Section 3.3 Ownership of Capital Stock........................................................... 14
<PAGE>
Section 3.4 Purchase Price of Shares............................................................. 14
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF UNIVERSITYCARE.............................................. 15
Section 4.1 Organization and Standing............................................................ 15
Section 4.2 Validity............................................................................. 15
Section 4.3 Investor Status...................................................................... 15
Section 4.4 No Adverse Law....................................................................... 16
ARTICLE 5. CONDITIONS TO THE OBLIGATION OF UNIVERSITYCARE................................................ 17
Section 5.1 Representations and Warranties of Doctors and MMS to be True and Correct............. 17
Section 5.2 Performance.......................................................................... 17
Section 5.3 All Proceedings to be Satisfactory................................................... 17
Section 5.4 Absence of Adverse Change............................................................ 17
Section 5.5 Approvals............................................................................ 18
Section 5.6 Supporting Documents................................................................. 18
Section 5.7 Board Approvals...................................................................... 19
Section 5.8 Managed Care Contracts............................................................... 19
Section 5.9 Beacon Transaction................................................................... 19
ARTICLE 6. CONDITIONS TO THE OBLIGATIONS OF DOCTORS AND MMS.............................................. 19
Section 6.1 Representations and Warranties of UniversityCare to be True and Correct.............. 19
Section 6.2 Performance.......................................................................... 19
Section 6.3 All Proceedings to be Satisfactory................................................... 19
Section 6.4 Approvals............................................................................ 20
Section 6.5 Supporting Documents................................................................. 20
ARTICLE 7. INTERIM COVENANTS OF DOCTORS BETWEEN THE DATE OF THIS AGREEMENT AND THE CLOSING DATE.......... 20
Section 7.1 Access to Information................................................................ 20
Section 7.2 Notice of Breach..................................................................... 21
ARTICLE 8. JOINT COVENANTS OF THE PARTIES................................................................ 21
Section 8.1 Confidentiality of Business Information.............................................. 21
Section 8.2 Confidentiality of this Agreement.................................................... 21
Section 8.3 Fair Market Value of Shares; No Impermissible Activities............................. 22
ARTICLE 9. TERMINATION................................................................................... 23
Section 9.1 Termination and Abandonment.......................................................... 23
ARTICLE 10. Indemnification and Claims........................................................... 23
Section 10.1 Indemnification by Doctors........................................................... 23
Section 10.2 Indemnification by MMS............................................................... 24
Section 10.3 Indemnification by UniversityCare.................................................... 24
Section 10.4 Limitation on and Expiration of Indemnification. .................................... 24
Section 10.5 Notice and Control of Litigation..................................................... 25
-ii-
<PAGE>
ARTICLE 11. MISCELLANEOUS........................................................................ 25
Section 11.1 Amendments........................................................................... 25
Section 11.2 Waiver............................................................................... 25
Section 11.3 Notices.............................................................................. 25
Section 11.4 Counterparts......................................................................... 26
Section 11.5 Enforceability and Severability...................................................... 26
Section 11.6 Governing Law........................................................................ 27
Section 11.7 Section Titles....................................................................... 27
Section 11.8 Assignment........................................................................... 27
Section 11.9 Expenses............................................................................. 27
Section 11.10 Survival of Agreements............................................................... 27
Section 11.11 Brokerage............................................................................ 27
Section 11.12 Parties in Interest.................................................................. 27
Section 11.13 Remedies............................................................................. 27
Section 11.14 Third Parties........................................................................ 28
Section 11.15 Entire Agreement..................................................................... 28
</TABLE>
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<PAGE>
<PAGE>
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (the
"Agreement") is entered into this 9th day of July, 1997, as amended on July 15,
1997 by and among UniversityCare, L.L.C., a Maryland limited liability company,
("UniversityCare"), Doctors Health System, Inc., a Maryland corporation
("Doctors"), Genesis Health Ventures, Inc., a Delaware corporation ("Genesis")
and Med-Lantic Management Services, Inc., a Maryland corporation ("MMS").
WHEREAS, Doctors is a managed care and medical management
company which develops and consolidates individual and groups of primary care
physicians, specialist physicians, hospitals and other health care providers
into primary care-driven, comprehensive managed care health delivery networks;
and
WHEREAS, UniversityCare is a limited liability company formed
for the purpose of creating a joint venture between the University of Maryland
Medical System Corporation and University Physicians, Inc.
WHEREAS, Genesis and MMS have entered into an agreement, dated
May 2, 1997, for the purchase by Genesis from MMS of approximately 408,000
shares of Series B Preferred Stock (the "Series B Stock") held by and/or due in
exchange for interest payments due and payable by Doctors to MMS (or its wholly
owned subsidiary) (the "Purchase Agreement"); and
WHEREAS, UniversityCare wishes to assume, by novation, all of
Genesis's rights and obligations under the Purchase Agreement, and to purchase
the Series B Stock from MMS, subject to the additional terms and conditions
contained herein; and Doctors, MMS and Genesis agree herein to assign and
delegate to UniversityCare, by novation, all of Genesis's rights and obligations
under the Purchase Agreement; and, upon such assignment and assumption, and the
closing of the transactions contemplated by this Agreement, Genesis shall be
released from any and all obligations under the Purchase Agreement;
WHEREAS, Doctors, Genesis and MMS wish to facilitate the
purchase by UniversityCare on the terms and subject to the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the premises and subject
to the representations, warranties, covenants, and conditions contained herein,
the parties agree as follows:
<PAGE>
1.
STOCK PURCHASE AND CLOSING
1.1 Purchase of the Shares. MMS and Genesis hereby agree to the
assignment and delegation of all of Genesis's rights and obligations under the
Purchase Agreement, by novation, to UniversityCare. Upon such assignment,
assumption and closing of the transactions contemplated by this Agreement,
Genesis shall be released from any and all obligations or liability under the
Purchase Agreement; provided, that in the event the Closing does not occur for
any reason, Genesis's obligation under the Purchase Agreement shall continue in
full force and effect. MMS, therefore, agrees to sell to UniversityCare, and
UniversityCare agrees to purchase from MMS all of the right, title, and interest
of MMS in and to the Series B Stock on the terms and subject to the conditions
set forth in this Agreement. The Series B Stock shall be free and clear of any
and all liens, pledges, or encumbrances of any kind, nature, or description
whatsoever, whether legal or equitable.
1.2 Purchase Price. The parties agree that the Purchase Price
shall be an aggregate of $4,659,376, representing $11.25 per share, as of July
1, 1997, to be adjusted to reflect accrued dividends and interest due as of the
Closing Date, and shall be payable in the form of wire transfer or other same
day funds, and shall be paid at the Closing, as defined below.
1.3 Closing.
1.3.1 The closing of the transactions
contemplated by this Agreement shall take place at the same place and
simultaneously with the closing of that certain stock purchase transaction
between Doctors and The Beacon Group III - Focus Value Fund, LP ("Beacon"),
contemplated by that certain letter of intent dated May 2, 1997 (the "Beacon
Offer"), or at such other location, date, and time as may be agreed upon by the
parties (such closing being called the "Closing" and such date being called the
"Closing Date").
1.3.2 At the Closing:
1.3.2.1 Doctors shall deliver to MMS a
stock certificate representing a number of shares of the Series B Stock
respecting payment of the accrued and unpaid dividends and interest thereon,
based on $11.25 per share, then due to MMS;
1.3.2.2 MMS shall deliver to
UniversityCare stock certificates evidencing all of the Series B Stock,
including the shares delivered by Doctors under Section 1.3.2.1, above, all in
definitive form, endorsed for transfer in the name of UniversityCare;
1.3.2.3 Doctors shall deliver to
UniversityCare a new certificate representing the Series B Stock
transferred by MMS to UniversityCare;
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<PAGE>
1.3.2.4 UniversityCare shall deliver to
MMS the Purchase Price;
1.3.2.5 The Charter and Bylaws of
Doctors shall be amended to provide for certain changes to the terms and
conditions of the Series B Stock;
1.3.2.6 On or before the Closing Date,
Doctors and MMS shall execute the Amendment of Final Credit Enhancement
Agreement in the form attached hereto as Exhibit 1.3.2.6; and
1.3.2.7 the parties will exchange all
other instruments, documents, certificates, and opinions required by this
Agreement.
1.4 Abandonment Date. Notwithstanding anything herein to the
contrary, if the Closing does not take place by the close of business on or
before August 15, 1997 (the "Abandonment Date"), Doctors, UniversityCare, or MMS
shall have the option to terminate the Agreement on or within five (5) working
days after the Abandonment Date; provided, however, that if the Closing does not
take place as a result solely of any delay in obtaining any necessary regulatory
approval, the Abandonment Date shall be extended for an additional sixty days;
provided further, however, that if such regulatory approval is not obtained
within such extended period, either Doctors or UniversityCare may terminate this
Agreement. The foregoing shall not be construed to terminate or otherwise affect
any claims any party may have against the other for breach of any obligation
arising out of this Agreement, or any other agreement entered into in connection
herewith, prior to the Abandonment Date. The MMS, Doctors, and UniversityCare
will seek and use their best efforts to obtain all governmental and regulatory
approvals for the consummation of the transactions contemplated by this
Agreement, and will cooperate with each other with respect to obtaining such
governmental and regulatory approvals.
1.5 Additional Covenants; Rights of the Series B Stock. Effective
as of the Closing, the Series B Stock shall have the following rights:
1.5.1 The Series B Stock shall have
the rights regarding dividends, conversion, liquidation and redemption
set forth in the Charter of Doctors, which terms shall be in substance
acceptable to UniversityCare.
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<PAGE>
1.6 Purchase Agreement Assumption. Effective on the Closing Date,
UniversityCare shall assume, by novation, all of Genesis's rights and
obligations under the Purchase Agreement, subject to the modifications contained
herein, and Doctors, MMS and Genesis shall assign and delegate to
UniversityCare, by novation, all of Genesis's rights and obligations under the
Purchase Agreement. The parties agree that Genesis shall thereby be released
from all obligations pursuant to the Purchase Agreement.
1.7 Piggyback Registration. If, at any time, Doctors proposes or
is required to register any of its equity securities under the Securities Act of
1933, as amended (other than pursuant to registrations on such forms or similar
form(s) solely for the registration of securities in connection with an employee
benefit plan or dividend reinvestment plan or a merger, consolidation or
acquisition) or a registration statement on Form S-1, Form S-2 or Form S-3 (or
an equivalent general registration form then in effect), whether or not for its
own account, Doctors shall give prompt written notice of its intention to do so
to UniversityCare. Upon the written request of UniversityCare, made within
fifteen (15) days following the receipt of any such written notice (which
request shall specify the maximum number of shares of Series B Stock then held
by UniversityCare (the "UniversityCare Stock") intended to be disposed of by
UniversityCare and the intended method of distribution thereof), Doctors shall
use its best efforts to cause such UniversityCare Stock to be registered under
the Securities Act (with the securities that Doctors at the time proposes to
register) and to permit the sale or other disposition by UniversityCare (in
accordance with the intended method of distribution thereof) of the
UniversityCare Stock. UniversityCare shall be entitled to one such piggyback
registration right, except as provided in any separate agreement which limits
its rights to sell all but not less than all of its shares as a result of the
actions of any managing underwriter for Doctors.
2.
REPRESENTATIONS AND WARRANTIES
OF DOCTORS
Doctors hereby represents and warrants to UniversityCare,
except as set forth in the disclosure schedules attached hereto as follows:
2.1 Organization, Qualification and Corporate Power. Doctors is
duly incorporated, validly existing, and in good standing under the laws of the
State of Maryland and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business to be transacted by it, or the character of the
properties owned by it or leased by it, requires such licensing or
qualification. Doctors has the corporate power and authority to own and hold its
properties and to carry on its business.
-4-
<PAGE>
2.2 No Breach. Except as set forth on Schedule 2.2, neither the
execution and delivery of this Agreement and related agreements contemplated
herein nor compliance with their terms will result in the breach or violation of
the Articles of Incorporation or Bylaws of Doctors or of any provision of any
agreement, indenture, mortgage, lease, or other obligation or instrument, any
judgment, or any order or decree of any court or other agency of government, or
cause any acceleration thereof, to which Doctors, or any of its properties or
assets are bound, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement, or other instrument, or result in the creation or imposition of any
lien, charge, restriction, claim or encumbrance of any nature whatsoever upon
any of the properties or assets of Doctors. The execution of this Agreement and,
upon receipt of required state and/or federal approvals, the consummation of the
transactions provided herein will not result in a violation by Doctors of any
federal, state or local laws or regulations.
2.3 Title to Properties. Except as set forth on Schedule 2.3,
Doctors has good and marketable title to its properties and assets reflected on
the financial statements furnished pursuant to Section 2.9 or acquired since the
date of such financial statements (other than properties and assets disposed of
in the ordinary course of business since the date of such financial statements
furnished in accordance with Section 2.9), and all such properties and assets
are free and clear of any and all mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances, except for liens for
current taxes not yet due and payable, and minor imperfections of title, if any,
which liens are not material in nature or amount and not materially detracting
from the value or impairing the use of the property subject thereto or impairing
the operations of Doctors.
2.4 Compliance With Law. Doctors has the lawful authority and all
material state, federal, special or local governmental authorizations, licenses,
or permits required to conduct its businesses as such businesses are presently
being conducted. There are no pending or threatened actions, notices, or
proceedings by any state, federal, special or local government or any
subdivision thereof or any public or private group which would have the effect
of changing the operation of such businesses other than as set forth on Schedule
2.4. Schedule 2.4 contains a list and brief description of all licenses,
including those granted or derived from governmental sources, issued or granted
to Doctors. Except as disclosed on Schedule 2.4, neither Doctors's operations,
nor any of the assets owned, leased, occupied or used by Doctors in the
operation of its businesses materially violates or fails to comply in any
material respect with applicable health, fire, environmental, safety, zoning or
building codes, laws or ordinances, rules or regulations.
2.5 Ownership of Capital Stock. Except as set forth on Schedule
2.5, Doctors warrants and represents that MMS owns, of record, all right, title
and interest in and to the Series B Stock free and clear of any voting trusts,
proxies or other arrangements, restrictions or limitations of any kind imposed
by Doctors or as otherwise listed on the stock ledger of Doctors,and, on the
Closing Date, the delivery by MMS of certificates in the manner set forth in
Section 1.3 will, to the best knowledge of Doctors, transfer good and valid
title to the Series B Stock to UniversityCare, free and clear of any voting
trusts, proxies or other arrangements,
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restrictions or other legal or equitable limitations of any kind, other than any
such legal or equitable limitations created or suffered to exist by
UniversityCare.
2.6 Capital Stock. The authorized capital stock of Doctors (the
"Stock") is set forth on Schedule 2.6, and the number of outstanding shares is
set forth on Schedule 2.6. All of the shares of Doctors's Stock have been duly
authorized and, to the extent issued, are validly issued, fully paid, and
nonassessable. Except as set forth on Schedule 2.6, Doctors has no other equity
securities or securities containing any equity features authorized, issued, or
outstanding. Doctors represents and warrants that MMS is the sole shareholder of
record of the Series B Stock. Except as set forth on Schedule 2.6, there are no
holders of stock appreciation rights, subscriptions, warrants, options,
convertible securities, and other rights (contingent or otherwise) to purchase
or otherwise acquire equity securities of Doctors. Immediately prior to Closing,
except as set forth on Schedule 2.6, there will be no outstanding subscriptions,
options, convertible securities, offers or other agreements or commitments
relating to the Stock of Doctors including, without limitation, any preemptive
rights or rights of first refusal. No shares of the Stock of Doctors are in
escrow or held as security for any obligation of Doctors or any beneficial owner
thereof. None of the securities of Doctors are subject to any voting trusts, nor
has Doctors received notice of any other agreements pertaining to the voting of
such securities and, as of Closing, except as set forth on Schedule 2.6, no
shareholder has any preemptive right or rights of first refusal with respect to
the issuance of any Stock, debt instruments, or other securities of Doctors.
2.7 The Series B Stock. Except for the effect on the Series B
Stock of the transaction contemplated by the sale of Series D Preferred Stock
under the Beacon Offer, the Series B Stock has been duly authorized and when
delivered to UniversityCare pursuant to the terms hereof, will be validly
issued, fully paid, and nonassessable shares of Series B Preferred Stock of
Doctors with no personal liability attaching thereto and will be free and clear
of any and all liens or encumbrances of any kind, nature or description
whatsoever, whether legal or equitable, imposed by Doctors, including,
forfeitures, pledges, penalties charges, tax liens, rights of first refusal,
equities, or claims or rights whatsoever of others.
2.8 Validity. Doctors has the full legal power and authority to
execute and deliver all other agreements and documents necessary to consummate
the contemplated transaction, and all corporate action of Doctors necessary for
such execution and delivery and the performance thereof will have been duly
taken. All agreements related to this transaction to be executed by Doctors have
been duly executed and delivered by Doctors and, when duly executed by the other
parties thereto, constitute the legal, valid, and binding obligation of Doctors
enforceable in accordance with their terms, subject as to enforcement of
remedies to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium, and similar laws
affecting the rights of creditors generally.
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2.9 Financial Statements. Doctors has furnished to UniversityCare
(i) the audited financial statements of Doctors as of June 30, 1995 and 1996
(the "Audited Financial Statements"), and the unaudited interim financial
statements for the months ended March 31, 1997 (the "Unaudited Financial
Statements") (collectively referred to as the "Financial Statements"), and, in
connection with the Audited Financial Statements, an unqualified report thereon
from Doctors's independent certified public accounting firm. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied (except, in the case of Unaudited Financial
Statements, for the absence of footnotes and year end adjustments) and fairly
present the financial position of Doctors and the results of operations and
changes in financial position as of the dates and for the periods specified.
Except as set forth in the Financial Statements, there are no liabilities
transferred to Doctors, except those arising in the ordinary course of business
which have been disclosed to UniversityCare or otherwise do not materially
adversely affect the financial condition of Doctors. Except as disclosed on
Schedule 2.9, since the date of the last Audited Financial Statement: (i) there
has been no material change in the assets, liabilities or financial condition of
Doctors from that reflected in the most recent Audited Financial Statement,
except for changes in the ordinary course of business and consistent with past
practice which in the aggregate have not been materially adverse to the
business, prospects, financial condition, operations, property, or affairs of
Doctors, and (ii) none of the business, prospects, financial condition,
operations, property, or affairs of Doctors has been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
2.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.10, Doctors has not incurred any liability of any nature (whether
absolute, accrued, contingent or otherwise) including, without limitation,
liabilities for federal, state, local or foreign taxes and liabilities to
customers or suppliers, other than (i) liabilities for which full provision has
been made on Doctors's Financial Statements referred to in Section 2.9; and (ii)
those which have arisen in the ordinary course of business, which in the
aggregate are not materially adverse to Doctors' financial condition.
2.11 Events Subsequent to the Audited Financial Statements. Except
as set forth on Schedule 2.11, since the date of the last Audited Financial
Statement Doctors has not: (i) issued any stock, bond or other corporate
security other than in connection with physician affiliation transactions; (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred, and liabilities
under contracts entered into in the ordinary course of business; (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Audited Financial Statements and current liabilities
incurred since the date of the Audited Financial Statements and reflected on the
Unaudited Financial Statements in the ordinary course of business; (iv) declared
or made any payment or distribution to Shareholders or purchased or redeemed any
share of its capital stock or other security; (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens
which arise by operation of law or liens of current real property taxes not yet
due
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and payable; (vi) sold, assigned or transferred any of its tangible assets
except in the ordinary course of business or cancelled any debt or claim; (vii)
sold, assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset; (viii) suffered any material loss of property or waived any
material right whether or not in the ordinary course of business; (ix) made any
change in officer compensation; (x) made any material change in the manner of
business or operations including any change in accounting principles and
practices; (xi) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby; or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
2.12 Outstanding Debt. Except as set forth in the Financial
Statements and Schedule 2.12, Doctors has not incurred any outstanding
indebtedness for borrowed money nor is it either a guarantor or otherwise
contingently liable for any such indebtedness. There exists no default under the
provisions of any instrument evidencing any indebtedness or otherwise of any
agreement relating thereto. Doctors has no outstanding loans or advances to any
person and is not obligated to make any such loans or advances.
2.13 Litigation and Investigations. Except as set forth on
Schedule 2.13, there is no: (i) action, suit, claim, proceeding, or
investigation pending or, to the best of Doctors's knowledge, threatened against
or affecting Doctors or any of Doctors's employees, by any private party or any
federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign; or, to the knowledge of
Doctors, pending, threatened against, or affecting persons or entities who
perform professional services under agreement with Doctors before any
professional self-governance, oversight, or regulatory body; (ii) arbitration
proceeding relating to Doctors pending under collective bargaining agreements or
otherwise; or (iii) governmental or professional inquiry pending or threatened
against or directly or indirectly affecting Doctors (including without
limitation any inquiry as to the qualification of Doctors or to hold or receive
any license or permit), and there is no basis for any of the foregoing as to
Doctors, its officers or directors or, to the Shareholders' or Doctors's
knowledge, as to entities or persons who perform professional services for
Doctors. Except as disclosed on Schedule 2.13, Doctors has not received any
opinion, memorandum, or legal advice from legal counsel to the effect that
Doctors is exposed, from a legal standpoint, to any liability which may be
material to the business of Doctors as now conducted. Doctors is not in default
with respect to any order, writ, injunction, or decree known to or served upon
it of any court or of any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign. There is no action or suit by Doctors pending or threatened against
others. Upon receipt of written approval for the transactions contemplated
herein from the applicable state regulatory bodies, if any, Doctors will have
complied in all material respects with all laws, rules, regulations, and orders
applicable to its businesses, operations, properties, assets, products, and
services, and Doctors has all necessary permits, licenses, and other
authorizations required to conduct its businesses as conducted and as proposed
to be conducted. There is no existing law, rule, regulation, or order, or
proposed law, rule, regulation, or order, whether federal, state, local, or
professional, which would prohibit or
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restrict Doctors from, or otherwise materially adversely affect Doctors in
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
2.14 Taxes. Doctors has filed all federal, state, county and local
tax returns, including, without limitation, income, sales, single business,
payroll, premium, withholding, informational and personal property tax returns,
required to be filed by it and such returns have been duly prepared and filed
and were true, correct, and complete. All taxes due by reason of the operations
conducted by Doctors have been paid, including, without limitation, all taxes
which Doctors are obligated to withhold from accounts owing to employees,
creditors, and third parties. All such taxes for which any such party has become
obligated pursuant to elections made in accordance with generally accepted
accounting principles have been paid and adequate reserves have been established
for all taxes accrued but not yet payable. The federal income tax returns of
Doctors have never been audited by the Internal Revenue Service. No deficiency
assessment with respect to any proposed adjustment of Doctors's federal, state,
county or local taxes is pending or threatened. There is no tax lien, whether
imposed by any federal, state, county or local taxing authority outstanding
against the assets, properties or businesses of Doctors. There is no pending
examination or proceeding by any authority or agency relating to the assessment
or collection of any such taxes, interest or penalties thereon, nor do there
exist any facts that would provide a basis for any such assessment. Doctors has
not executed or filed any consent or agreement to extend the period for
assessment or collection of any such taxes.
2.15 Employees. Doctors is not a party to any collective
bargaining agreement. There is no labor strike or other disturbance or any
union organizing effort with respect to Doctors. Doctors's relationship with
its employees may be characterized as good.
2.16 Insurance Coverage. Doctors has maintained, with financially
sound and reputable insurers, professional liability, casualty, property loss,
and other insurance coverage of such types and in such amounts as is customary
for companies similarly situated. Schedule 2.16 lists and briefly describes the
policies concerning such insurance coverage, and, except as otherwise provided
on Schedule 2.16, all such policies will continue in effect after the Closing
Date. Doctors has not received any notice of any default with respect to its
obligations under any of such insurance policies.
2.17 Contracts and Other Commitments. Each material contract of
Doctors, including, but not limited to each agreement between Doctors and any
core medical group, individual practice association or other provider of health
care services, is a valid and binding obligation of the parties thereto,
enforceable in accordance with its terms (subject to bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and except for limitations upon the availability of equitable remedies,
including specific performance). Except as set forth on Schedule 2.17, none of
the transactions contemplated by this Agreement creates in any party to any
material contracts and commitments the right to revise the terms of, to
terminate, to accelerate any obligation of Doctors or otherwise declare that
such contracts or commitments have been breached. Doctors is not aware of any
defaults and do not
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have any reason to believe that a default may occur by Doctors or any other
party to the contracts and commitments to which Doctors may become a party (by
assignment, transfer by operation of law, succession, or otherwise). For
purposes of this Section, the term "material" means having a value of $10,000 or
more, and shall include any and all provider and payor agreements, irrespective
of the dollar value.
2.18 Fees and Commissions. Except as set forth on Schedule 2.18,
Doctors has not agreed to pay or become liable to pay any broker's, finder's, or
originator's fees or commissions by reason of services alleged to have been
rendered for, or at the instance of, Doctors in connection with this Agreement
and the transactions contemplated hereby.
2.19 Disclosure. No representation or warranty by Doctors in this
Agreement, and no exhibit, schedule, or certificate furnished or to be furnished
by Doctors pursuant hereto, contains any untrue statement of a fact, or omits to
state a fact required to be stated herein or therein or necessary to make the
statements contained herein or therein not misleading. There is no fact of which
Doctors is aware, which has not been disclosed in writing to UniversityCare,
which adversely affects Doctors. Neither this Agreement, the business plan of
Doctors, the Financial Statements, nor any other agreement, document,
certificate or written statement furnished to UniversityCare or its counsel by
or on behalf of Doctors in connection with the transactions contemplated hereby
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Projections made in the Business Plan are not considered to be facts
for the purpose of this Section. There is no fact within the knowledge of
Doctors or any of its executive officers which has not been disclosed herein or
in writing by them to UniversityCare and which materially adversely affects, or
in the future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, properties, assets or condition, financial or
other, of Doctors. Without limiting the foregoing, Doctors has no knowledge that
there exists, or there is pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or code
which would materially adversely affect the business, operations, affairs or
financial condition of Doctors.
2.20 Employee Benefit Plans. For purposes of this Agreement, the
term "Employee Plan" includes any pension, retirement, savings, disability,
medical, dental or other health plan, life insurance (including any individual
life insurance policy as to which Doctors makes premium payments whether or not
Doctors is the owner, beneficiary or both of such policy) or other death benefit
plan, profit sharing, deferred compensation, stock option, bonus or other
incentive plan, vacation benefit plan, severance plan or other employee benefit
plan or arrangement (whether written or arising from custom), including, without
limitation, any employee pension benefit plan ("Pension Plan") as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any employee welfare benefit plan as defined in Section 3(1) of
ERISA ("Welfare Plan"), whether or not any of the foregoing is funded, and
whether written or oral, (i) to which Doctors is a party or by which Doctors (or
any of its respective rights, properties or assets) is bound or (ii) with
respect to which
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Doctors has made payments, contributions or commitments or may otherwise have
any liability (including any such plan or arrangement formerly maintained by
Doctors. There are no Employee Plans other than those listed in Schedule 2.20.
2.21 Certain Agreements of Officers and Employees.
2.21.1 To Doctor's best knowledge and belief,
no officer or employee of Doctors is, or is now expected to be, in violation of
any term of any employment contract, patent disclosure agreement, proprietary
information agreement, non-competition agreement, confidentiality agreement, or
any other similar contract or agreement or any restrictive covenant relating to
the right of any such officer or employee to be employed by Doctors because of
the nature of the business conducted or to be conducted by Doctors or relating
to the use of trade secrets or proprietary information of others, and to
Doctors's best knowledge and belief, the continued employment of Doctors's
officers and employees does not subject Doctors or the Purchaser to any
liability with respect to any of the foregoing matters.
2.21.2 To the best knowledge of Doctors, no
officer of Doctors, nor any Key Employee of Doctors whose termination, either
individually or in the aggregate, would have an adverse effect on Doctors, has
any present intention of terminating his employment with Doctors.
2.22 Transactions with Affiliates. Except as set forth in Exhibit
2.22, there are no loans, leases, royalty agreements or other continuing
transactions between (a) Doctors or any of its customers or suppliers, and (b)
any officer, employee or director of Doctors or any Person owning five percent
(5%) or more of the capital stock of Doctors or any member of the immediate
family of such officer, employee, director or stockholder or any corporation or
other entity controlled by such immediate family of such officer, employee,
director or stockholder.
2.23 Securities Act of 1933. Doctors has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Stock, including the Series B Stock. Neither
Doctors nor anyone acting on its behalf has or will sell, offer to sell or
solicit offers to buy the Stock or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Series B Stock under the registration provisions of the Securities
Act and applicable state securities laws.
2.24 Insurance. Doctors carries insurance covering its properties
and business adequate and customary for the type and scope of the properties,
assets and business, but in any event in amounts sufficient to prevent Doctors
from becoming a co-insurer, up to reasonable deductibles.
2.25 Books and Records. The books of account, ledgers, order
books, records and documents of Doctors accurately and completely reflect all
material information relating to
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the business of Doctors, the location and collection of its assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of Doctors.
2.26 Fraud and Abuse. Doctors has not engaged in any activities
which are prohibited under federal Medicare and Medicaid statutes, 42 U.S.C. ss.
ss. 1320a-7, 1320a-7(a) and 1320a-7b, the federal CHAMPUS statute, or the
regulations promulgated pursuant to such statutes or state or local statutes or
regulations of similar effect, or which are prohibited by rules of professional
conduct, including but not limited to the following: (i) knowingly and willfully
making or causing to be made a false statement or representation of a material
fact in any application for any benefit or payment; (ii) knowingly and willfully
making or causing to be made any false statement or representation of a material
fact for use in determining rights to any benefit or payment; (iii) presenting
or causing to be presented a claim for reimbursement for services under CHAMPUS,
Medicare, Medicaid, or other state health care program that is for an item or
service that is known or should be known to be (a) not provided as claimed, or
(b) false or fraudulent; (iv) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment; (v) knowingly and willfully
offering, paying, soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid, or
other state health care program, or (b) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in whole or in
part by CHAMPUS, Medicare or Medicaid or other state health care program; (vi)
knowingly making a payment, directly or indirectly, to a physician as an
inducement to reduce or limit services to individuals who are under the direct
care of the physician and who are entitled to benefits under CHAMPUS, Medicare,
Medicaid, or other state health care program; (vii) providing to any person
information that is known or should be known to be false or misleading that
could reasonably be expected to influence the decision when to discharge a
hospital in-patient from the hospital; (viii) knowingly and willfully making or
causing to be made or inducing or seeking to induce the making of any false
statement or representation (or omits to state a fact required to be stated
therein or necessary to make the statements contained therein not misleading) of
a material fact with respect to (a) the conditions or operations of a facility
in order that the facility may qualify for CHAMPUS, Medicare, Medicaid or other
state health care program certification, or (b) information required to be
provided under ss. 1124A of the Social Security Act (42 U.S.C. ss. 1320a-3);
(ix) knowingly and willfully (a) charging for any Medicaid service money or
other consideration at a rate in excess of the rates established by the state,
or (b) charging, soliciting, accepting or receiving, in addition to amounts paid
by Medicaid, any gift money, donation or other consideration (other than a
charitable, religious or other philanthropic contribution from an organization
or from a person unrelated to the patient) (x) as a precondition of treating the
patient, or (y) as a requirement for the patient's continued treatment.
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3.
REPRESENTATIONS AND WARRANTIES OF MMS
MMS represents and warrants as to itself solely to
UniversityCare as follows:
3.1 Organization, Qualification and Corporate Power. MMS is duly
incorporated, validly existing, and in good standing under the laws of the State
of Maryland. MMS has the corporate power and authority to own and hold its
properties and to carry on its business.
3.2 No Breach. Neither the execution and delivery of this
Agreement and related agreements contemplated herein nor compliance with their
terms will result in the breach or violation of the Articles of Incorporation or
Bylaws or other organizational documents of MMS or of any provision of any
agreement, indenture, mortgage, lease, or other obligation or instrument, any
judgment, or any order or decree of any court or other agency of government, or
cause any acceleration thereof, to which MMS or any of its properties or assets
are bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement,
or other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any of
the properties or assets of MMS which would adversely affect the ability of MMS
to transfer its shares hereunder. The execution of this Agreement and, upon
receipt of required state and/or federal approvals, the consummation of the
transactions provided herein will not result in a violation by MMS of any
federal, state or local laws or regulations which would affect the ability of
MMS to transfer his/her/its Shares hereunder.
3.3 Ownership of Capital Stock. MMS owns, beneficially and of
record, all right, title and interest in and to the Shares set forth on Exhibit
A as being owned by MMS, free and clear of any security interests, claims,
liens, pledges, options, encumbrances, charges, agreements, voting trusts,
proxies or other arrangements, restrictions or limitations of any kind, and, on
the Closing Date, the delivery by MMS of certificates in the manner set forth in
Section 1.3 will transfer good and valid title to the Series B Stock to
UniversityCare, free and clear of any security interests, claims, liens,
pledges, options, encumbrances, charges, agreements, voting trusts, proxies or
other arrangements, restrictions or other legal or equitable limitations of any
kind, other than any such legal or equitable limitations created or suffered to
exist by UniversityCare.
3.4 Purchase Price of Shares. MMS represents and warrants that the
Purchase Price of the Series B Stock hereunder is based upon the purchase price
of $11.25 per
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share paid by MMS to acquire the Series B Stock. MMS represents and warrants
that none of the proceeds being paid to MMS will be paid or become payable to
Doctors.
4.
REPRESENTATIONS AND WARRANTIES OF UNIVERSITYCARE
UniversityCare represents, warrants, and covenants to Doctors
and MMS as follows:
4.1 Organization and Standing. UniversityCare is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Maryland and is duly licensed or qualified to transact
business and is in good standing in each jurisdiction in which the nature of the
business to be transacted by it, or the character of the properties owned by it
or leased by it, requires such licensing or qualification.
4.2 Validity. UniversityCare has full legal power and authority to
enter into this Agreement and to carry out the transactions contemplated hereby,
and all proceedings required to be taken by or on its part to authorize the
execution, delivery, and performance of this Agreement have been duly and
properly taken. This Agreement has been duly executed and delivered by
UniversityCare and is a valid and binding obligation of UniversityCare
enforceable in accordance with its terms (subject to bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and except for limitations upon the availability of equitable remedies,
including specific performance). Any other agreement contemplated to be entered
into by UniversityCare in connection with this transaction, when executed and
delivered, will constitute the legal, valid, and binding obligation of
UniversityCare enforceable in accordance with its respective terms (subject as
to enforcement of remedies to the discretion of courts in awarding equitable
relief and to applicable bankruptcy, reorganization, insolvency, moratorium, and
similar laws affecting the rights of creditors generally). The execution and
delivery by UniversityCare of this Agreement, and the performance of its
obligations hereunder, and the purchase of the Shares, does not require any
action or consent of any party other than UniversityCare pursuant to any
contract, agreement, or other undertaking of UniversityCare, or pursuant to any
order or decree to which UniversityCare is a party or to which its properties or
assets are subject, and will not violate any provision of law, the Articles of
Incorporation or Bylaws of UniversityCare any order of any court or other agency
of the government or any indenture, agreement, or other instrument to which
UniversityCare or any of its properties or assets are bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement, or other instrument; or result in
the creation or imposition of any lien, charge, restriction, claim, or
encumbrance of any nature whatsoever upon any of the properties or assets of
UniversityCare.
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4.3 Investor Status. UniversityCare represents and warrants to
Doctors that:
4.3.1 it has had an opportunity to discuss
Doctors's business, management, and financial affairs with Doctors's
management;
4.3.2 its present intention is to acquire the
Series B Stock for its own account (and it will be the sole beneficial owner
thereof) and that the Series B Stock are being and will be acquired by it for
the purpose of investment and not with a view to distribution or resale thereof.
UniversityCare further represents that it understands and agrees that, until
registered under the Securities Act or transferred pursuant to the provisions of
Rule 144 as promulgated by the Securities and Exchange Commission (the
"Commission"), all certificates evidencing any of the Series B Stock, whether
upon initial issuance or upon any transfer thereof, will bear a legend,
prominently stamped or printed thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or the securities
laws of any state.
These securities have been acquired for investment and not
with a view to distribution or resale. These securities may
not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an
effective registration statement covering such shares under
the Act and any applicable state securities laws, unless the
holder shall have obtained an opinion of counsel satisfactory
to the corporation that such registration is not required."
"These securities are subject to restrictions on transfer as
set forth in the Shareholders and Voting Agreement
among Doctors and certain of its stockholders."
4.3.3 it understands that the Series B Stock
have not been registered under the Securities Act and applicable state
securities laws, and, therefore, cannot be resold unless they are subsequently
registered under the Securities Act and applicable state securities laws or
unless an exemption for such registration is available; UniversityCare is and
must be purchasing the Series B Stock Shares for investment for the account of
UniversityCare and not for the account or benefit of others, and not with any
present view toward resale or other distribution thereof. UniversityCare agrees
not to resell or otherwise dispose of all or any part of the Series B Stock
purchased by it, except as permitted by law, including, without limitation, any
regulations under the Securities Act and applicable state securities laws; and
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4.3.4 it has no present need for
liquidity in connection with its purchase of the Series B Stock.
4.4 No Adverse Law. UniversityCare has no knowledge of any current
law or regulation under the Internal Revenue Code of 1986, as amended, which is
applicable to any tax exempt entity which is an affiliate of UniversityCare, and
which, by its specific terms, would prevent the investment by UniversityCare
hereunder.
5.
CONDITIONS TO THE OBLIGATION OF UNIVERSITYCARE
The obligation of UniversityCare to purchase and pay for the
Series B Stock on the Closing Date and consummate any other transaction
contemplated by this Agreement is, at its option, subject to the satisfaction,
on or before the Closing Date, of the following conditions:
5.1 Representations and Warranties of Doctors and MMS to be True
and Correct. The representations and warranties contained in Articles 2 and 3
shall be true, complete, and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made by Doctors,
and/or MMS, as applicable, on and as of such date, and appropriate officers of
Doctors and MMS, respectively, shall have certified to such effect to
UniversityCare in writing.
5.2 Performance. Doctors shall have performed and complied with
all agreements contemplated herein that are required to be performed or complied
with by it prior to or at the Closing Date. Doctors will have obtained any
consents or waivers necessary to execute and deliver this Agreement, the Series
B Stock and the other agreements and instruments executed and delivered by
Doctors in connection herewith, including, but not limited to, the consent of
the holders of the outstanding Preferred Stock, and any consents or waivers
necessary to carry out the transactions contemplated hereby and thereby, and
such consents and waivers will be in full force and effect at the Closing. All
corporate and other action and governmental filings necessary to effectuate the
terms of this Agreement, the Series B Stock and the other agreements and
instruments executed and delivered by the Company in connection herewith will
have been made or taken.
5.3 All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by Doctors and MMS in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to UniversityCare, and UniversityCare shall have received all
such counterpart originals or certified or other copies of such documents as it
reasonably may request.
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5.4 Absence of Adverse Change. There shall have been no material
adverse change in the business, assets, financial condition, or operations of
Doctors or any other event that would, with the passage of time or otherwise,
impair or otherwise affect the accuracy of any of the representations and
warranties of Doctors and MMS. Prior to Closing, Doctors shall have promptly
notified UniversityCare in writing of any event of which Doctors's officers have
knowledge or, after due inquiry, should have knowledge, that occurred, or was
likely to occur, and which was likely to result in an adverse change in the
business, assets, financial condition, or operations of Doctors and of any other
event that would, with the passage of time or otherwise, impair or otherwise
affect the accuracy of any of the representations and warranties of Doctors and
MMS contained herein on and as of the Closing Date.
5.5 Approvals. All necessary corporate, including adoption of any
necessary amendments to the Articles of Incorporation, and regulatory approvals
for the transactions contemplated by this Agreement shall have been obtained.
5.6 Supporting Documents. UniversityCare shall have received
copies of the following documents:
5.6.1 (i) The Articles of Incorporation of Doctors,
certified as of a recent date by the Secretary of State of the State of
Maryland; (ii) a certificate of said Secretary dated as of a recent date as to
the due incorporation and good standing of Doctors; and (3) certificates of good
standing as a foreign corporation in jurisdictions, if any, in which Doctors is
qualified to do business;
5.6.2 A certificate of the Secretary or an
Assistant Secretary of Doctors, respectively, dated as of the Closing Date
and certifying: (i) that the Bylaws of Doctors attached thereto are true,
correct and complete; (ii) that attached thereto is a true and complete copy of
all resolutions adopted by Doctors authorizing the execution, delivery, and
performance of this Agreement and all transactions contemplated by this
Agreement and that all such resolutions are in full force and effect and are all
the resolutions adopted in connection with the transactions contemplated by this
Agreement; and (iii) to the incumbency and specimen signature of each officer of
Doctors executing this Agreement and/or any other agreement related hereto, and
a certification by another officer of Doctors as to the incumbency and signature
of the officer signing the certificate referred to in this Section;
5.6.3 The favorable opinion of (i) Paul A.
Serini, Esquire and Thomas Mapp, Esquire, counsel for Doctors in the form
set forth in Exhibit 5.6.3;
5.6.4 A certificate of the Secretary or an
Assistant Secretary of MMS, dated as of the Closing Date and certifying: (i)
that attached thereto is a true and complete copy of all resolutions adopted by
MMS authorizing the execution, delivery, and performance of this Agreement and
all transactions contemplated by this Agreement and that all such resolutions
are in full force and effect and are all the resolutions adopted in connection
with the transactions
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contemplated by this Agreement; and (ii) to the incumbency and specimen
signature of each officer of MMS executing this Agreement and/or any other
agreement related hereto, and a certification by another officer of MMS as to
the incumbency and signature of the officer signing the certificate referred to
in this Section; and
5.6.5 Such additional supporting documents and
other information with respect to the operations and affairs of Doctors as
UniversityCare reasonably may request.
5.7 Board Approvals. The Board of Managers of UniversityCare and
the respective Board of Directors of the University of Maryland Medical System
Corporation and University Physicians, Inc., to the extent necessary, shall have
approved the Agreement, the funding thereof and the transactions contemplated
hereby, in their sole discretion.
5.8 Managed Care Contracts. Doctors, UniversityCare, University of
Maryland Medical System Corporation and University Physicians, Inc. shall enter
into a comprehensive managed care agreement, consistent with that certain Letter
of Understanding executed by Doctors and UniversityCare, and which agreement or
agreements shall have a ten year term and such additional terms and conditions
as mutually agreed to by the parties.
5.9 Beacon Transaction. The transaction between Beacon and
Doctors, substantially in the form and substance contemplated by the Beacon
Offer, shall close simultaneously with or immediately preceding the Closing.
6.
CONDITIONS TO THE OBLIGATIONS OF DOCTORS AND MMS
The obligation of MMS to sell the Series B Stock to
UniversityCare on the Closing Date and the obligations of Doctors to consummate
any other transaction contemplated by this Agreement is, at its option, subject
to the satisfaction, on or before the Closing Date, of the following conditions:
6.1 Representations and Warranties of UniversityCare to be True
and Correct. The representations and warranties contained in Article 4 shall be
true, complete, and correct on and as of the Closing Date with the same effect
as though such representations and warranties had been made by UniversityCare on
and as of such date, and officers of UniversityCare shall have certified to such
effect to Doctors and MMS in writing.
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6.2 Performance. UniversityCare shall have performed and complied
with all agreements contemplated herein that are required to be performed or
complied with by it prior to or at the Closing Date.
6.3 All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by UniversityCare in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to MMS and Doctors and MMS shall have received all such
counterpart originals or certified or other copies of such documents as it
reasonably may request.
6.4 Approvals. All necessary corporate and regulatory approvals
for the transactions contemplated by this Agreement shall have been obtained.
6.5 Supporting Documents. Doctors and MMS shall have received
copies of the following documents:
6.5.1 A certificate of the Secretary or an
Assistant Secretary of UniversityCare, dated as of the Closing Date and
certifying: (i) that attached thereto is a true and complete copy of all
resolutions adopted by UniversityCare authorizing the execution, delivery, and
performance of this Agreement and all transactions contemplated by this
Agreement and that all such resolutions are in full force and effect and are all
the resolutions adopted in connection with the transactions contemplated by this
Agreement; and (ii) to the incumbency and specimen signature of each officer of
UniversityCare executing this Agreement and/or any other agreement related
hereto, and a certification by another officer of UniversityCare as to the
incumbency and signature of the officer signing the certificate referred to in
this Section.
6.5.2 UniversityCare shall execute and deliver
the Shareholders and Voting Agreement by and among Doctors, Beacon and other
shareholders, dated as of the Closing, the form and substance of which shall
have been agreed to by the parties thereto.
6.5.3 Such additional supporting documents and
other information with respect to the operations and affairs of UniversityCare
as MMS or Doctors reasonably may request.
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7.
INTERIM COVENANTS OF DOCTORS
BETWEEN
THE DATE OF THIS AGREEMENT AND THE CLOSING DATE
Doctors covenants to UniversityCare that for the period
between the date of this Agreement and the Closing Date that Doctors shall
maintain its properties and business and shall preserve its business,
organization, and the goodwill of customers and suppliers. Except as otherwise
herein provided, without the prior written consent of UniversityCare, which
consent shall not be unreasonably withheld, or in order to consummate the Beacon
Offer, Doctors shall not conduct its business except in the ordinary course.
7.1 Access to Information. Prior to Closing, Doctors shall permit
UniversityCare and its representatives reasonable access during normal business
hours to all of the properties, books, contracts, commitments, and records of
Doctors.
7.2 Notice of Breach. Doctors and shall promptly give notice to
UniversityCare of the occurrence of any event, or the failure of any event to
occur, that results in a breach of any representation or warranty of Doctors or
the Shareholders, or a failure by it or them to comply with any covenant,
condition, or agreement contained herein.
8.
JOINT COVENANTS OF THE PARTIES
8.1 Confidentiality of Business Information. The parties
heretofore have received and hereafter may receive various financial and other
information concerning their respective activities, businesses, assets, and
properties. The parties agree that:
8.1.1 all such information thus
received by the parties shall not at any time, or in any way or manner, be
utilized by the parties for their respective advantage or disclosed by the
parties to others for any purpose whatsoever; and
8.1.2 the parties shall take all
reasonable measures to assure that no employee or agent under their
respective control shall at any time use or disclose any information
described in this Section; and
8.1.3 this Section shall not apply to
MMS, or to: (i) any such information that was known to the parties prior to its
disclosure to the parties in accordance with this Section
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or was, is, or becomes generally available other than by disclosure by the
parties or any of their respective employees or agents in violation of this
Section; or (ii) any disclosure which such party makes to any regulatory
agency pursuant to that parties' obligations of disclosure to such agency.
8.2 Confidentiality of this Agreement.
8.2.1 The existence and contents of this
Agreement and its Schedules and Exhibits and the nature and status of the
transactions described herein and therein are confidential. Without the prior
written consent of the other party, none of the parties will disclose to any
person, other than to its respective directors, officers, and key employees,
affiliates, accounting, investment banking, and legal advisers, any such
confidential information unless, in the written opinion of counsel to the party
seeking to make the disclosure, such a disclosure is required by applicable law.
The timing and content of any announcements, press releases, or other public
statements concerning the transactions contemplated by this Agreement will occur
upon, and be determined by, the mutual agreement and consent of the parties.
8.2.2 Notwithstanding the
restrictions contained in the foregoing Section 8.2.1, the parties agree
that MMS may make the following disclosures:
8.2.2.1 MMS has completed the sale of all
of its Series B Stock;
8.2.2.2 the purchase price received
for the Series B Stock was equal to MMS's original purchase price plus the
agreed upon return on investment; and
8.2.2.3 the sale was to an unrelated
Maryland health care organization, provided that MMS will not disclose the
name of the purchaser;
provided, however, that MMS shall not make any press or other media release
concerning the Agreement or the transactions described herein;
8.2.3 With respect to rating agencies,
MMS may disclose the Closing Date, the actual Purchase Price, and, to the
extent that such rating agencies are bound by an obligation of
confidentiality and non-disclosure, the name of the purchaser and the Bill of
Sale described below; and
8.2.4 With respect to the Maryland
Insurance Department (the "Insurance Department"), UniversityCare and MMS
shall execute and deliver at Closing a Bill of Sale setting forth the number of
shares sold by MMS and the Purchase Price and that the Purchase Price reflects
MMS's original purchase price plus the agreed upon return on investment.
MMS may submit the Bill of Sale to the Insurance Department. MMS agrees that
it will not submit any additional information to the Insurance Department
unless: (i) it has received a request, in writing, from the Insurance
Department; and (ii) it has notified UniversityCare prior
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to filing any response to such request, in order to permit UniversityCare to
obtain such confidentiality treatment of such information as is reasonably
possible under the circumstances.
8.3 Fair Market Value of Shares; No Impermissible Activities.
Doctors and UniversityCare agree that the fair market value of the Series B
Stock was determined in an arms length transaction and is not determined in a
manner that takes into account the volume or value of any referrals or business
otherwise generated between the parties for which payment may be made, in whole
or in part, under Medicare or any State health care program, as defined under
Section 1128B of the Social Security Act. Doctors and UniversityCare further
agree that the purchase of Series B Stock and any related transaction between
the parties or affiliates thereof, do not involve the counseling or promotion of
a business arrangement or other activity that violates any State or federal law.
Doctors and UniversityCare agree that, to the best of its respective knowledge,
none of the proceeds being paid to MMS will be paid or become payable to Doctors
as an inducement to make referrals to UniversityCare or any affiliate thereof.
9.
TERMINATION
9.1 Termination and Abandonment. This Agreement may be terminated
and the transactions abandoned by mutual consent of the parties, or by any of
the parties by notice to the others:
9.1.1 in the event that any of the conditions
precedent to the performance of the obligations of the party giving such notice
shall not have been fulfilled and cannot be fulfilled on or prior to the Closing
Date and shall not have been waived by such party, or if a default shall be made
by another party in the observance or in the due and timely performance of any
of the covenants and agreements herein contained that cannot be cured on or
prior to the Closing Date and shall not have been waived by the party giving
such notice; provided that nothing provided herein shall be construed as
permitting a party to terminate when an affiliate of the party has been in
default;
9.1.2 in the event of the institution or
serious threat by any governmental authority or by any other person of
litigation or proceedings against any of the parties to enjoin, hinder or delay
or to obtain damages or other relief in connection with this Agreement or the
transactions contemplated herein; or
9.1.3 if any consent or approval which is
necessary to the transactions contemplated herein or the continuing
business, properties or prospects of Doctors shall have been refused or
withdrawn by any governmental authority having jurisdiction.
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9.1.4 Any termination pursuant to Section 9.1
shall first be approved by the Board of Directors of the party seeking
termination, to the extent that such approval is required for such action.
10.
Indemnification and Claims.
10.1 Indemnification by Doctors. Doctors shall defend and
indemnify and hold UniversityCare, each of its affiliates, and their respective
officers, directors, employees and agents, and each of their heirs, executors,
successors and assigns wholly harmless from and against any and all liabilities,
losses, damages, costs (including, without limitation, court costs and costs of
appeal), and expenses (including, without limitation, reasonable attorneys'
fees) incurred or maintained by UniversityCare, its affiliates, and their
respective directors, officers, employees and agents, and each of their heirs,
executors, successors and assigns, because of any inaccuracy in, or material
breach or violation of, the representations, warranties, and covenants made by
Doctors in this Agreement.
10.2 Indemnification by MMS. MMS shall defend and indemnify and
hold UniversityCare, each of its affiliates, and their respective officers,
directors, employees and agents, and each of their heirs, executors, successors
and assigns wholly harmless from and against any and all liabilities, losses,
damages, costs (including, without limitation, court costs and costs of appeal),
and expenses (including, without limitation, reasonable attorneys' fees)
incurred or maintained by UniversityCare, its affiliates, and their respective
directors, officers, employees and agents, and each of their heirs, executors,
successors and assigns, because of any inaccuracy in, or material breach or
violation of, the representations, warranties, and covenants made by MMS in this
Agreement.
10.3 Indemnification by UniversityCare. UniversityCare shall
defend and indemnify Doctors and MMS and hold Doctors and MMS, their affiliates,
each of their respective directors, officers, employees and agents, and each of
their heirs, executors, successors and assigns wholly harmless from and against
any and all losses, liabilities, damages, costs (including, without limitation,
court costs and cost of appeal) and expenses (including, without limitation,
reasonable attorneys' fees of one counsel) that either Doctors or MMS incurs as
a result of, or with respect to any inaccuracy in or breach of any
representation, warranty, covenant or agreement of UniversityCare contained in
this Agreement.
10.4 Limitation on and Expiration of Indemnification.
Notwithstanding anything in this ARTICLE 10 to the contrary, Doctors's and MMS's
rights to indemnification from UniversityCare and UniversityCare's rights to
indemnification from Doctors and/or MMS shall be limited as follows:
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10.4.1 all rights of the parties hereto to
indemnification hereunder for breaches of representations and warranties shall
expire two (2) years after the Closing Date; provided, however, if, prior to
such expiration, a state of facts shall have become known which threatens to
give rise to a liability against which any party hereto would be entitled to
indemnification hereunder and the indemnified party shall have given notice of
such facts to the indemnifying party, then the rights of the indemnified party
to indemnification with respect to such liability shall continue until such
liability shall have been finally determined and disposed of; and provided,
however, a party's rights to indemnification upon the other party's failure to
comply with this ARTICLE 10 shall survive until the expiration of the applicable
period of limitations.
10.4.2 No party shall be entitled to
indemnification pursuant to Sections 10.1(a) or 10.2(b) unless and until the
aggregate amount of damages to which the foregoing indemnity relates, sustained
by such party with respect to any individual claim exceeds Ten Thousand Dollars
($10,000), and then only to the extent that such damages exceed in the aggregate
Twenty-five Thousand Dollar ($25,000). Further, a breach of any of the
materiality standards set forth in this Agreement shall be defined as damages
with respect to any individual claim which exceeds Ten Thousand Dollars
($10,000).
10.5 Notice and Control of Litigation. If any claim or liability
is asserted in writing against a party entitled to indemnification under this
ARTICLE 10 (the "Indemnified Party") which would give rise to a claim under this
ARTICLE 10, the Indemnified Party shall notify the person providing the
indemnity ("Indemnifying Party") in writing of the same within fifteen (15) days
of receipt of such written assertion of a claim or liability. The Indemnifying
Party shall have the right to defend a claim and control the defense, settlement
and prosecution of any litigation. If the Indemnifying Party, within ten (10)
days after notice of such claim, fails to defend such claim, the Indemnified
Party will (upon further notice to the Indemnifying Party) have the right to
undertake the defense, compromise or settlement of such claim on behalf of and
for the account and risk of the Indemnifying Party, subject to the right of the
Indemnifying Party to assume the defense of such claim at any time prior to
settlement, compromise or final determination thereof. Anything in this Section
10.5 notwithstanding, (i) if there is a reasonable probability that a claim may
materially and adversely affect the Indemnified Party other than as a result of
money damages or other money payments, the Indemnified Party shall have the
right, at its own cost and expense, to defend, compromise and settle such claim,
and (ii) the Indemnifying Party shall not, without the written consent of the
Indemnified Party settle or compromise any claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant to the Indemnified Party a release from all liability in respect to
such claim. All parties agree to cooperate fully as necessary in the defense of
such matters. Should the Indemnified Party fail to notify the Indemnifying Party
in the time required above, this indemnity shall terminate and be of no further
force and effect with respect to the subject matter of the required notice in
the event that the Indemnified Party's failure to notify in the time
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required above materially adversely affects the Indemnifying Party's ability to
defend such matter.
11.
MISCELLANEOUS
11.1 Amendments. This Agreement may not be amended or modified
without the written consent of the parties hereto.
11.2 Waiver. Failure to insist upon strict compliance with any of
the terms, covenants, or conditions of this Agreement at any one time shall not
be deemed a waiver of such term, covenant, or condition at any other time nor
shall any waiver or relinquishment of any right or power herein at any time be
deemed a waiver or relinquishment of the same or any other right or power at any
other time.
11.3 Notices. All notices, payments, or other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if sent by registered or certified mail, postage prepaid, and
return receipt requested to the parties, by overnight courier service or by
telecopy, addressed as follows (or at such other addresses as designated by the
parties from time to time):
If to Doctors:
Doctors Health System, Inc.
10451 Mill Run Circle
10th Floor
Owings Mills, Maryland 21117
Attn: President and Chief Executive Officer; and
Executive Vice President and Director of Legal
Services
If to MMS:
Med-Lantic Management Services, Inc.
225 International Court
Hunt Valley, Maryland 21030
Attn: Stephen Carney
If to UniversityCare:
UniversityCare, L.L.C.
University Physicians Professional Building
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419 W. Redwood Street
Suite 220
Baltimore, Maryland 21201
Attn: Robert Barish, M.D.
Chief Executive Officer
If to Genesis:
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19348
Attn: President
11.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.5 Enforceability and Severability. In the event any provision
of this Agreement or portion thereof is found to be wholly or partially invalid,
illegal, or unenforceable in any proceeding, then such provision shall be deemed
to be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted or as if such provision had not
been originally incorporated herein, as the case may be.
11.6 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Maryland.
11.7 Section Titles. The titles of the sections have been inserted
as a matter of convenience and reference only and shall not control or affect
the meaning or construction of this Agreement.
11.8 Assignment. This Agreement shall not be assignable by any
party without the prior written consent of the other.
11.9 Expenses. Each party hereto will pay its own legal,
accounting and other fees and expenses incident to the transactions contemplated
hereby, whether or not such transactions shall be consummated. Each party will
be responsible for its own costs relative to the negotiations of such agreements
and the preparation of any schedules or ancillary documents and agreements
applicable to such party and required by this Agreement.
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11.10 Survival of Agreements. Except as provided in Section 10.4,
all covenants, agreements, representations, and warranties made herein or in any
other agreement, certificate, or instrument delivered to either party pursuant
to or in connection with this Agreement shall survive the execution and delivery
of this Agreement and the sale and delivery of the Shares until the applicable
statute of limitations. All statements contained in any certificate or other
instrument delivered by either party hereunder or in connection herewith shall
be deemed to constitute representations and warranties made by such party. Such
representations and warranties shall survive in full force and effect
notwithstanding any investigation by UniversityCare.
11.11 Brokerage. Each party hereto will indemnify and hold the
others harmless against and in respect of any claim for 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.
11.12 Parties in Interest. All representations, covenants, and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
11.13 Remedies. All remedies for breach of this Agreement shall
be cumulative.
11.14 Third Parties. Except as specifically provided herein, this
Agreement does not and is not intended to create any rights in any person or
entity which is not a party to this Agreement.
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11.15 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement and
understanding of the parties with respect to the subject matter hereof.
All Schedules and Exhibits hereto are incorporated herein by reference.
INTENDING TO BE LEGALLY BOUND, the parties hereto have duly
executed this Agreement to be effective as of the day and year first written
above.
UNIVERSITYCARE, L.L.C. DOCTORS HEALTH SYSTEM, INC.
By: /s/ Robert Barish By: /s/ Stewart B. Gold
_______________________ ______________________
Robert Barish Stewart B. Gold
_______________________ ______________________
Print Name Print Name
Chief Executive Officer President
_______________________ ______________________
Title Title
GENESIS HEALTH VENTURES, INC. MED-LANTIC MANAGEMENT
SERVICES, INC.
By: /s/ George V. Hager, Jr. By: /s/ David L. Murray
_________________________ ______________________
George V. Hager, Jr. David L. Murray
_______________________ ______________________
Print Name Print Name
Senior Vice President President
_______________________ ______________________
Title Title
Exhibit 10.4
SHAREHOLDERS' AND VOTING AGREEMENT
by and among
DOCTORS HEALTH, INC.,
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
and
THE OTHER SHAREHOLDERS
THAT ARE SIGNATORIES HERETO
Dated as of July 15, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Definitions........................................................1
Section 2. Methodology for Calculations.......................................7
Section 3. Corporate Governance...............................................7
3.1. Composition of the Board.................................7
3.2. Executive Committee; Other Committees; Subsidiaries......8
3.3. Vacancies; Removal.......................................9
3.4. Non-Voting Observer......................................10
3.5. Representative...........................................10
3.6. Board and Committee Meetings.............................10
3.7. Directors' Indemnification...............................11
3.8. Irrevocable Proxy........................................11
3.9. Contractual Management Rights............................12
3.10. Expenses................................................12
3.11. Cooperation.............................................12
3.12. Reincorporation.........................................12
Section 4. Restrictions on Transfers of Stock.................................12
Section 5. Management Shareholders............................................13
Section 6. Rights of First Offer..............................................21
Section 7. Tag-Along Rights...................................................23
Section 8. Drag-Along Rights..................................................24
Section 9. Issuance Rights....................................................25
Section 10. Holdback Agreement; Adjustments...................................26
Section 11. Certain Covenants.................................................26
11.1. Financial Statements and Other Information..............26
11.2. Restrictions............................................27
11.4. Public Disclosures......................................29
11.5. Additional Shareholders.................................30
Section 12. Conflicting Agreements............................................30
Section 13. Legend............................................................30
Section 14. Representations and Warranties....................................31
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Section 15. Duration of Agreement.............................................32
Section 16. Further Assurances................................................32
Section 17. Amendment and Waiver..............................................32
Section 18. Severability......................................................33
Section 19. Entire Agreement..................................................33
Section 20. Successors and Assigns............................................33
Section 21. Counterparts......................................................33
Section 22. Remedies..........................................................33
Section 23. Notices...........................................................33
Section 24. Governing Law.....................................................34
Section 25. Miscellaneous.....................................................34
Section 26. Old Shareholders Agreement........................................34
Section 27. Construction......................................................34
ii
<PAGE>
SHAREHOLDERS' AND VOTING AGREEMENT
THIS SHAREHOLDERS' AND VOTING AGREEMENT is made as of July 15,
1997 by and among DOCTORS HEALTH, INC., a Maryland corporation (the "Company"),
THE BEACON GROUP III - FOCUS VALUE FUND, L.P., a Delaware limited partnership
("Beacon") and each of the shareholders of the Company executing one of the
signature pages attached hereto.
W I T N E S S E T H :
WHEREAS, as of the date hereof, Beacon is purchasing 2,000,000
shares of Series D Preferred Stock, par value $10.00 per share ("Series D
Preferred"), of the Company pursuant to that certain Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement");
WHEREAS, the Company and certain shareholders are all of the
parties to that certain Amended and Restated Stockholders Agreement dated as of
January 31, 1997 (the "Old Shareholders Agreement"), and each of them and Beacon
has determined that it is in their best interests that the Old Shareholders
Agreement be terminated and canceled and replaced in its entirety by this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and obligations hereinafter set forth, the parties hereto
hereby agree as follows:
Section 1. Definitions. As used herein, the following terms
shall have the following meanings :
"Affiliate" means (i) with respect to any Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person and (ii) with respect to any
individual, shall also mean the spouse, parent, sibling, child, step-child,
grandchild, niece or nephew of such Person, or the spouse thereof.
"Agreement" means this Shareholders' and Voting Agreement as
it may be amended, restated or modified from time to time.
"Beacon" has the meaning assigned to it in the Preamble.
"Beacon Designee" has the meaning assigned to it in Section
3.1(b).
"Beacon Director" has the meaning assigned to it in Section
3.1(a).
"Beacon Registration Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and Beacon as it may
be amended from time to time.
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"Board" has the meaning assigned to it in Section 3.1(a).
"By-laws" means the By-laws of the Company as in effect on the
date hereof, as they may be amended from time to time hereafter.
"Change in Control" shall mean, with respect to the Company,
the earlier to occur of the following: (i) a liquidating distribution to the
Company' shareholders (or similar event); (ii) a contribution, consolidation or
merger where the Company is not the survivor; and (iii) any sale, exchange or
other disposition of all, or substantially all, of the Company's assets.
"Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of the Company and any equity securities issued or
issuable with respect to the Class A Common Stock in connection with a
reclassification, split or combination of shares.
"Class B Common Stock" means the Class B Common Stock, par
value $.01 per share, of the Company and any equity securities issued or
issuable with respect to the Class B Common Stock in connection with a
reclassification, split or combination of shares.
"Class B Directors" has the meaning assigned to it in Section
3.1(a).
"Class C Common Stock" means the Class C Common Stock, par
value $.01 per share, of the Company and any equity securities issued or
issuable with respect to the Class C Common Stock in connection with a
reclassification, split or combination of shares.
"Closing" has the meaning assigned to it in Section 5(e).
"Closing Date" has the meaning assigned to it in Section 5(e).
"Code" has the meaning assigned to it in Section 5(b).
"Common Stock" means the shares of Common Stock of the
Company, including Class A Common Stock, Class B Common Stock and Class C Common
Stock.
"Common Stock Equivalents" means securities convertible into,
or exchangeable or exercisable for, shares of Common Stock.
"Company" has the meaning assigned to it in the Preamble.
"Company Acceptance Period" has the meaning assigned to it in
Section 6(c).
"Disability" (with respect to a Management Shareholder) shall
have the meaning set forth in such Management Shareholder's employment agreement
with the
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Company, and if no such agreement exists, as determined by the Board in the
exercise of its reasonable discretion.
"Disabled Shareholder" has the meaning assigned to it in
Section 5(c).
"Drag-Along Initiator" has the meaning assigned to it in
Section 8(a).
"Drag-Along Transaction" has the meaning assigned to it in
Section 8(a).
"Drag-Along Value" has the meaning assigned to it in Section
8(a).
"Executive Committee" has the meaning assigned to it in
Section 3.2.
"Excluded Securities" means (i) options issued by the Company
to employees or consultants pursuant to the Company's Amended and Restated
Omnibus Stock Plan or similar plan (and any shares of Common Stock issuable
thereunder) approved by the Board and (ii) shares of Common Stock issuable upon
conversion, exchange or exercise of any Common Stock Equivalents outstanding as
of the date hereof.
"Fair Market Value" means fair market value as determined
(unless expressly otherwise provided herein) by mutual agreement between the
Company and the holders of not less than 50% of the issued and outstanding
shares of Stock with respect to which such determination is made hereunder or,
if the parties are unable to agree, as determined by a nationally recognized
independent investment banking firm selected by mutual agreement between the
Company and the holders of not less than 50% of the issued and outstanding
shares of such Stock.
"First Offer Percentage" means, as to each Offered
Shareholder, the quotient obtained (expressed as a percentage) by dividing (i)
the number of shares of Common Stock owned by such Offered Shareholder on the
first day of the Shareholder Acceptance Period by (ii) the aggregate number of
shares of Common Stock owned on the first day of the Shareholder Acceptance
Period by all Offered Shareholders who exercise their option to purchase Subject
Stock.
"First Offer Shares" has the meaning assigned to it in Section
6(b).
"GAAP" means United States generally accepted accounting
principles, as in effect from time to time.
"GHV" means Genesis Health Ventures, Inc., a Delaware
corporation.
"GHV Registration Agreement" means the Amended Registration
Rights Agreement, dated as of January 31, 1997 and amended as of the date
hereof, between the Company and GHV, as it may be amended from time to time.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
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"Involuntary Transfer" means the occurrence of any of the
following: (i) the attachment or taking in execution of any portion of a
Management Shareholder's Stock, (ii) the application by a Management Shareholder
for the benefit of, or filing by a Management Shareholder of an action under,
any provision of the federal or state bankruptcy laws or any other law relating
to insolvency or relief of debtors, (iii) if a case or proceeding is brought
against a Management Shareholder under any provision of the federal or state
bankruptcy laws or any other law relating to insolvency or relief of debtors,
and such case or proceeding is not dismissed within 60 days after the
commencement thereof, (iv) a Management Shareholder makes an assignment of Stock
for the benefit of creditors, (v) a Management Shareholder's Stock is made
subject to a charging order or (vi) a Management Shareholder's Stock is
Transferred pursuant to a divorce decree.
"Involuntary Transfer Shareholder" has the meaning assigned to
it in Section 5(a).
"IPO" means the initial underwritten offering pursuant to
which Common Stock becomes registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
"Issuance" has the meaning assigned to it in Section 9.
"Issuance Acceptance Period" has the meaning assigned to it in
Section 9(a).
"Issuance Notice" has the meaning assigned to it in Section
9(a).
"Issuance Offer" has the meaning assigned to it in Section
9(a).
"Issuance Period" has the meaning assigned to it in Section
9(b).
"Issuance Stock" has the meaning assigned to it in Section
9(a).
"Issue" has the meaning assigned to it in Section 9.
"Major Shareholder" means any of the Senior Management
Shareholders or any other Shareholder who owns, directly or indirectly, at least
5% of the outstanding Common Stock at the time of determination.
"Management Shareholder" means each Senior Management
Shareholder, person holding the office of Vice President and above, and each
other individual who has been identified by the Executive Committee as a member
of the Company's executive management team and to whom Stock has been issued by
the Company.
"Non-Involuntary Transfer Management Shareholders" has the
meaning assigned to it in Section 5(a).
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"Non-Voting Observer" has the meaning assigned to it in
Section 3.4.
"Note" has the meaning assigned to it in Section 5(e).
"Offer" has the meaning assigned to it in Section 6(a).
"Offer Notice" has the meaning assigned to it in Section 6(a).
"Offered Shareholders" has the meaning assigned to it in
Section 6(a).
"Old Shareholders Agreement" has the meaning assigned to it in
the Recitals.
"Oversubscribed Shareholder" has the meaning assigned to it in
Section 6(b).
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivisions thereof.
"Post-IPO Threshold" has the meaning assigned to it in Section
3.1(b).
"Preferred Stock" means any of, and any combination of, Series
A Preferred, Series B Preferred, Series C Preferred and Series D Preferred.
"Pre-IPO Threshold" has the meaning assigned to it in Section
3.1(a).
"Public Sale" means a Transfer pursuant to a bona fide
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act.
"Purchase Agreement" has the meaning assigned to it in the
Recitals.
"Qualified IPO" means a bona fide, firm commitment,
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Securities Act (i) resulting in at least
$35,000,000 of net proceeds to the Company after deducting underwriting
discounts and commissions and offering expenses and (ii) reflecting an aggregate
market valuation for the Company of at least $150,000,000.
"Remaining Shares" has the meaning assigned to it in Section
6(b).
"Reserved Matters" has the meaning assigned to it in Section
3.2.
"Restated Articles" means the Company's Second Articles of
Amendment and Restatement as filed with the Department of Assessment and
Taxation of the State of Maryland, as they may be amended or restated from time
to time.
"Sale Period" has the meaning assigned to it in Section 6(d).
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"Securities Act" means the Securities Act of 1933, as amended.
"Senior Management Shareholder" means any of Stewart Gold,
Scott Rifkin and Alan Kimmel.
"Series A Preferred" means Series A Preferred Stock, par value
$5.00 per share, of the Company.
"Series B Preferred" means Series B Preferred Stock, par value
$11.25 per share, of the Company.
"Series C Preferred" means Series C Preferred Stock, par value
$17.50 per share, of the Company.
"Series D Preferred" has the meaning assigned to it in the
Recitals.
"Shareholder Acceptance Period" has the meaning assigned to it
in Section 6(b).
"Shareholders" means the parties to this Agreement (other than
the Company) and any other subsequent holder of Stock who agrees to be bound by
the terms of this Agreement.
"Stock" means (i) any shares of Common Stock and (ii) any
Common Stock Equivalents (including, without limitation, the Preferred Stock and
the Common Stock issuable upon conversion thereof), in each case, whether owned
on the date hereof or acquired hereafter.
"Subject Stock" has the meaning assigned to it in Section
6(a).
"Subsidiary" means with respect to any Person, (i) any
corporation, partnership or other entity of which shares of capital stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other similar managing body of such corporation,
partnership or other entity are at the time owned by such Person, or (ii) the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries by such Person.
"Tag-Along Initiator" has the meaning assigned to it in
Section 7(b).
"Tag-Along Notice" has the meaning assigned to it in Section
7(b).
"Tag-Along Offeree" has the meaning assigned to it in Section
7(b).
"Tag-Along Shares" has the meaning assigned to it in Section
7(b).
"Terminated Manager's Stock" has the meaning assigned to it in
Section 5(b).
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"Terminated Senior Manager" has the meaning assigned to it in
Section 5(c).
"Transfer" as to any Stock, means to sell, or in any other way
directly or indirectly transfer, assign, distribute, pledge, encumber or
otherwise dispose of, either voluntarily or involuntarily.
"Voting Shares" means any securities of the Company the
holders of which are entitled to vote for one or more members of the Board
(including, without limitation, all outstanding shares of Common Stock and
Preferred Stock).
Section 2. Methodology for Calculations. For purposes of this
Agreement, the Transfer of a Common Stock Equivalent shall be treated as the
Transfer of the shares of Common Stock into which such Common Stock Equivalent
can be converted, exchanged or exercised. Except as otherwise provided in this
Agreement, for purposes of calculating (i) the amount of outstanding Stock or
Common Stock as of any date, (ii) the amount of Stock or Common Stock owned by a
Person hereunder and (iii) related percentages, all shares of Preferred Stock
(but no other Common Stock Equivalents) shall be treated as having been
converted, exchanged or exercised.
Section 3. Corporate Governance.
3.1. Composition of the Board.
(a) Pre-IPO. The Board of Directors of the Company (the
"Board") shall, in accordance with the provisions of the Restated Articles, be
comprised of no more than twenty members. Prior to an IPO:
(i) So long as Beacon holds (x) 51% or more of the
number of shares of Series D Preferred purchased by Beacon pursuant to
the Purchase Agreement or (y) 5% or more of the Common Stock (the
"Pre-IPO Threshold"), Beacon shall have the right to designate two
persons to serve as members of the Board, and in all other cases, the
holders of a majority of the outstanding shares of Series D Preferred,
including, for the purposes of this clause (i) holders of shares of
Class C Common Stock into which shares of Series D Preferred have been
converted, shall have the right to designate two persons to serve as
members of the Board (each, a "Beacon Director");
(ii) the holders of a majority of the outstanding
shares of Class A Common Stock shall have the right to designate six
persons to serve as members of the Board; provided, however, that the
holders of the outstanding shares of Class A Common Stock hereby agree
to designate each of the Senior Management Shareholders as three of the
six members of the Board to be elected by the holders of a majority of
the outstanding Class A Common Stock for as long as, in each such
Senior Management Shareholder's case, his employment agreement with the
Company is in full force and effect. Each Senior Management Shareholder
shall offer to resign as a member of the Board
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immediately upon termination of his employment with the Company, and
the holders of the Class A Common Stock agree to remove from the Board
any Senior Management Shareholder who is no longer employed by the
Company;
(iii) the holders of a majority of the outstanding
shares of Class B Common Stock shall have the right to designate eight
persons to serve as members of the Board (the "Class B Directors");
(iv) the holders of a majority of the outstanding
shares of Series A Preferred, including, for the purposes of this
clause (iv) shares of Class C Common Stock into which shares of Series
A Preferred have been converted, shall have the right to designate one
person to serve as a member of the Board;
(v) the holders of a majority of the outstanding
shares of Series B Preferred, including, for the purposes of this
clause (v) shares of Class C Common Stock into which shares of Series B
Preferred have been converted, shall have the right to designate one
person to serve as a member of the Board; and
(vi) the holders of a majority of the outstanding
shares of Series C Preferred, including, for the purposes of this
clause (vi) shares of Class C Common Stock into which shares of Series
C Preferred have been converted, shall have the right to designate two
persons to serve as members of the Board.
(b) Post-IPO. From and after an IPO and for so long as Beacon
holds 5% or more of the Common Stock then outstanding (the "Post-IPO
Threshold"), in connection with any election for members of the Board, the
Company shall, at the request of Beacon, include one representative designated
by Beacon in the slate of directors recommended by the Board to shareholders for
election as directors (such representative designated by Beacon being referred
to herein as the "Beacon Designee"). The Company and the Shareholders shall each
use their best efforts to cause the Beacon Designee to be elected to, and to be
maintained as a member of, the Board (including (i) in the case of the Company,
recommending to the shareholders of the Company the election of the Beacon
Designee to the Board and opposing any proposal to remove the Beacon Designee at
each meeting of the shareholders of the Company at which the election or removal
of members of the Board is on the agenda and (ii) in the case of the
Shareholders, voting all of their Voting Shares in favor of the Beacon Designee,
and voting such shares against any person opposing the Beacon Designee), and
shall take no action that would diminish the prospects of the Beacon Designee
being elected to the Board or increase the prospects of the Beacon Designee
being removed from the Board.
3.2. Executive Committee; Other Committees; Subsidiaries.
(a) Executive Committee. Except with respect to matters
requiring approval by the full Board and which may not be delegated to a
committee of the Board under the Maryland General Corporation Law ("Reserved
Matters"), the authority of the
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Board shall be vested in and exercised by an executive committee of the Board
(the "Executive Committee"). The Shareholders agree to vote all of their Voting
Shares for directors who agree to vote to cause the management of the Company by
its Board to be conducted in accordance with the provisions of this Section
3.2(a) and agree to vote all of their Voting Shares to promptly remove any
director designated by such Shareholder who fails to vote to cause the
management of the Company by its Board to be conducted in accordance with the
provisions of this Section 3.2(a). With respect to Reserved Matters, the Board
shall only act after receiving the recommendation of the Executive Committee in
connection therewith and, subject to the exercise of applicable fidicuary
duties, shall act in a manner consistent with such recommendation. The Executive
Committee shall have seven members and shall be comprised of:
(i) the two directors designated by the holders
of Series D Preferred pursuant to Section 3.1(a)(i);
(ii) the Chief Executive Officer of the Company;
(iii) two of the eight directors designated by the
holders of Class B Common Stock pursuant to Section 3.1(a)(iii), which
two directors shall be selected by majority vote of all such directors
and both of whom shall be physicians;
(iv) one of the two directors designated by the
holders of Series C Preferred pursuant to Section 3.1(a)(vi), which one
director shall be selected by agreement of both such directors; and
(v) one physician nominated by the Chief Executive
Officer of the Company and approved by a majority of the Class B
Directors then in office.
(b) Other Committees; Subsidiaries; Certain Opportunities.
Without limiting the provisions of Section 3.1(a) or 3.2(a), the Company shall,
to the extent requested by Beacon, so long as Beacon meets or exceeds the
Pre-IPO Threshold or Post-IPO Threshold, as applicable, take all actions
necessary to cause at least one Beacon Director or Beacon Designee to be
appointed to each committee of the Board and to each of the boards of directors
or other similar managing bodies (and any committee thereof) of each of the
Subsidiaries of the Company. The Company shall, to the extent requested by
Beacon, elect as the board of directors of each Subsidiary those persons who are
at the time directors of the Company as provided in Section 3.1. Neither
Beacon's ownership of Stock nor its designation of members of the Board shall
require Beacon to present to the Company any opportunities of which Beacon or
its Affiliates become aware through means other than Beacon's membership on the
Board or as a shareholder of the Company.
3.3. Vacancies; Removal.
(a) Vacancies. If any director or Beacon Designee designated
as such pursuant to the provisions of Section 3.1 or Section 3.2(b) shall cease
to serve as a director of the Company or any Subsidiary for any reason, the
vacancy resulting
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thereby shall be filled by another person designated in accordance with the
provisions of Section 3.1 or Section 3.2(b), as applicable and the Restated
Articles.
(b) Removal. No director or Beacon Designee shall be removed
from office without the consent of the Shareholders entitled to designate such
director or, in the case of a Beacon Designee, Beacon, so long as such
Shareholder, or in the case of a Beacon Designee, Beacon, is entitled to
designate such director or Beacon Designee, as applicable.
3.4. Non-Voting Observer. The Company agrees that so long as
Beacon holds 5% or more of the outstanding Common Stock, Beacon shall be
entitled to have up to two observers (each, a "Non-Voting Observer") selected by
Beacon present at all meetings of the Board, and each committee thereof
(including, without limitation, the Executive Committee), and such observer
shall have the same access to information concerning the business and operations
of the Company at the same time as directors of the Company and shall be
entitled to participate in discussions and consult with, and make proposals and
furnish advice to, the Board or committee, as the case may be, without voting;
provided, however, that the Board or committee, as the case may be, shall be
under no obligation to take any action with respect to any proposals made or
advice furnished by any Non-Voting Observer, other than to give due
consideration thereto. The Company shall notify each Non-Voting Observer of
every meeting (or action by written consent) of the Board, or committee, as the
case may be, in the same manner that notice is required to be provided to
members of the Board pursuant to the By-Laws or, if such notice under the
circumstances is not practicable, as soon before the meeting (or distribution)
as is practicable, provided that nothing in this Section 3.4 shall be construed
in any way to authorize or allow a party hereto not to comply with its
obligations hereunder or release it from liability and equitable remedy in the
case of a breach. Each such Non-Voting Observer shall execute a confidentiality
agreement in such form as prescribed by the Company.
3.5. Representative. In the event that, after receiving proper
notice of a meeting of the Board, or any committee thereof, or a meeting of any
board of directors or similar managing body of any of the Company's Subsidiaries
in accordance with such entity's by-laws, any Beacon Director, Beacon Designee
or Non-Voting Observer determines that he or she is unable to attend such
meeting, Beacon shall have the right to designate a representative to attend and
observe such meeting on behalf of such Beacon Director, Beacon Designee or
Non-Voting Observer, as the case may be, who shall be entitled to fully
participate in such meeting to the full extent he or she could participate if he
or she were a Non-Voting Observer.
3.6. Board and Committee Meetings. The Company shall cause the
Board to hold regular meetings of its Board and the Executive Committee on at
least a quarterly basis. The Company agrees, and shall cause the By-laws to be
amended to the extent necessary to provide that, so long as Beacon meets or
exceeds the Pre-IPO Threshold or the Post-IPO Threshold, as applicable, each
Beacon Designee and each Beacon Director shall have the right, upon reasonable
notice, to call meetings of the Board and of each committee of the Board on
which he or she is a member. The
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Company agrees that any Non-Voting Observer shall have the right to request that
the Chairman of the Board or the Chief Executive Officer of the Company call a
meeting of the Board and of each committee of the Board.
3.7. Directors' Indemnification.
(a) The Company shall obtain and cause to be maintained in
effect, with financially sound insurers, a policy of directors' and officers'
liability insurance covering each member of the Board, each Beacon Designee and
each Non-Voting Observer in an amount of at least $3 million per occurance and
$5 million in the aggregate.
(b) The Restated Articles, By-laws and other organizational
documents of the Company and each of its Subsidiaries shall at all times, to the
fullest extent permitted by law, provide for indemnification of, advancement of
expenses to, and limitation of the personal liability of, the members of the
Board and each committee thereof, and the members of the boards of directors or
other similar managing bodies of each of the Company's Subsidiaries and such
other persons, if any, who, pursuant to a provision of such Restated Articles,
By-laws or other organizational documents, exercise or perform any of the powers
or duties otherwise conferred or imposed upon members of the Board and each
committee thereof, or the boards of directors or other similar managing bodies
of each of the Company's Subsidiaries. Any Non-Voting Observer shall be entitled
to indemnification from the Company to the maximum extent permitted by law as
though he or she were an officer or agent of the Company or any of its
Subsidiaries. Such provisions may not be amended, repealed or otherwise modified
in any manner adverse to any member of the Board or any committee thereof, or
any member of the boards of directors or other similar managing bodies of any of
the Company's Subsidiaries, until at least six years following the date that
Beacon is no longer entitled to designate or nominate any Beacon Director,
Beacon Designee or Non-Voting Observer.
(c) Each member of the Board, Beacon Designee and Non-Voting
Observer is intended to be a third-party beneficiary of the obligations of the
Company pursuant to this Section 3.7, and the obligations of the Company
pursuant to this Section 3.7 shall be enforceable by each member of the Board,
Beacon Designee and Non-Voting Observer.
3.8. Irrevocable Proxy. In order to secure each Shareholder's
obligation to vote his Voting Shares in accordance with the provisions of this
Section 3 pursuant to which Beacon has rights hereunder, each Shareholder hereby
irrevocably appoints Beacon as his, her or its true and lawful proxy and
attorney-in-fact, with full power of substitution, to vote all of his Voting
Shares of the Company for the election of each Beacon Director and each Beacon
Designee as a member of the Board and to take all such other actions as are
necessary to enforce the rights of Beacon under this Section 3. Such irrevocable
proxy shall become effective and Beacon may exercise the irrevocable proxy
granted to it hereunder at any time any Shareholder fails to comply with any
provision of this Agreement granting Beacon rights under this Section 3. The
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proxies and powers granted by each Shareholder pursuant to this Section 3.8 are
coupled with an interest and are given to secure the performance of the
Shareholders' obligations to Beacon under this Section 3. Such proxies and
powers shall survive the death, incompetence and disability of each Shareholder.
Such proxies and powers will be effective until Beacon no longer owns at least
the Post-IPO Threshold, at which time such proxies and powers shall terminate.
3.9. Contractual Management Rights. The Company and each of
the Shareholders acknowledge that the provisions of this Agreement, including,
without limitation, this Section 3, are intended, among other things, to provide
Beacon with "contractual management rights" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
promulgated thereunder.
3.10. Expenses. The Company shall pay the reasonable
out-of-pocket expenses incurred by each Beacon Director, Beacon Designee and
Non-Voting Observer, and any representative of the foregoing, in connection with
performing his or her duties, including without limitation the reasonable
out-of-pocket expenses incurred by such person attending meetings of the Board
or any committee thereof or meetings of any board of directors or other similar
managing body (and any committee thereof) of any Subsidiary of the Company.
3.11. Cooperation. Each Shareholder shall vote all of its
Voting Shares and shall take all other necessary or desirable actions within its
control (including, without limitation, attending all meetings in person or by
proxy for purposes of obtaining a quorum, executing all written consents in lieu
of meetings and voting to remove members of the Board, as applicable), and the
Company shall take all necessary and desirable actions within its control
(including, without limitation, calling special Board and shareholder meetings
and voting to remove members of the Board, as applicable), to effectuate the
provisions of this Section 3.
3.12. Reincorporation. The Company and each Shareholder agree
that if the Company's state of incorporation has not been moved to Delaware by
the initial closing under the Purchase Agreement, then, if Beacon requests, the
Company and each Shareholder shall use their best efforts to so reincorporate
the Company within 60 days after such closing. If such reincorporation is not
effected within such 60 day period, the Company and the Shareholders agree to
take all such action as may be necessary or appropriate to promptly amend the
Restated Articles and this Agreement to increase the size of the Board to a size
sufficient to permit Beacon to appoint additional directors if the events
described in Article V.3 of the Restated Articles occur such that Beacon's
directors will, in such circumstances, represent more than 50% of the members of
the Board.
Section 4. Restrictions on Transfers of Stock.
(a) No Shareholder shall Transfer any Stock, whether owned on
the date hereof or acquired hereafter, without first, if applicable, complying
with the
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provisions of Section 6 hereof and then, in each case as applicable, complying
with the provisions of Section 7 hereof; provided that Beacon may Transfer up to
500,000 of its shares of Stock to any Affiliate or business associate of Beacon
or its Affiliates without the need to comply with the provisions of Sections 6
or 7 (but, subject to the provisions of Section 4(b)). Notwithstanding any other
provision hereof, no Management Shareholder may Transfer any Stock if, after
giving effect to such Transfer, such Management Shareholder shall have
Transferred in the aggregate an amount of Stock in excess of 5% of the
outstanding Stock held by such Management Shareholder as of the date hereof,
except that (i) from and after a Qualified IPO a Management Shareholder may
Transfer Stock, (ii) a Management Shareholder may Transfer Stock in connection
with the bona fide merger of the Company or bona fide sale of all or
substantially all of the assets or equity securities of the Company, and (iii) a
Management Shareholder may Transfer Stock as set forth in Section 5. Except with
respect to Transfers of Stock by Management Shareholders described in Section 5,
each Management Shareholder shall, prior to any Transfer of Stock permitted by
this Section 4, comply with the provisions of Sections 6 and 7 hereof, in each
case as applicable.
(b) Except in connection with a Public Sale, any Transferee of
Stock (including any Transferee that is an Affiliate of a Transferor) who is not
a Shareholder shall upon consummation of, and as a condition to, such Transfer
execute and deliver to the Company (which the Company shall then deliver to all
other Shareholders) an agreement in form and substance satisfactory to Beacon
pursuant to which it agrees to be bound by the terms of this Agreement for the
benefit of the parties hereto and such Transferee shall thereafter be deemed to
be a Shareholder for all purposes of this Agreement.
(c) Any Transfer or attempted Transfer of Stock in violation
of any provision of this Agreement shall be void, and the Company shall not
record such Transfer on its books or treat any purported Transferee of such
Stock as the owner of such Stock for any purpose.
Section 5. Management Shareholders.
(a) Involuntary Transfers. Upon the occurrence of an
Involuntary Transfer of the Stock of any Management Shareholder (the
"Involuntary Transfer Shareholder"), the Company shall have the option (but not
the obligation), for a period of 30 days from the date of such occurrence, to
purchase such Stock by providing written notice to such effect to such
Involuntary Transfer Shareholder and to any court that has then exercised
jurisdiction over such Involuntary Transfer Shareholder with respect to its
Stock, or to any assignee, trustee in bankruptcy or successor in interest, as
the case may be, and such Involuntary Transfer Shareholder shall be obligated,
if the Company elects to exercise its right to purchase such Stock, to sell all
but not less than all of the Stock then registered in such Involuntary Transfer
Shareholder's name at the price provided in Section 5(d) hereof and upon the
terms provided in Section 5(e) hereof. If the Company elects not to exercise its
option pursuant to this Section 5(a) within such 30-day period, it shall
immediately provide written notice to that effect to all
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of the other Management Shareholders (the "Non-Involuntary Transfer Management
Shareholders") who shall have the option to purchase, and such Involuntary
Transfer Shareholder shall be obligated to sell to the extent such option is
exercised, all of the shares of such Stock at the price provided in Section 5(d)
hereof and upon the terms provided in Section 5(e) hereof. If more than one
Non-Involuntary Transfer Management Shareholder desires to so purchase, then
they shall purchase in such proportions as they may agree. In the absence of
agreement, each of the Non-Involuntary Transfer Management Shareholders desiring
to purchase such stock shall be entitled to purchase up to that number of shares
of such Stock that is equal to the product of such Management Shareholder's
percentage share of the outstanding Common Stock then held by such
Non-Involuntary Transfer Management Shareholders desiring to purchase such stock
multiplied by the number of shares of Stock available for purchase from the
Involuntary Transfer Shareholder hereunder. The Non-Involuntary Transfer
Management Shareholders shall have the right to exercise their respective
options hereunder for a period of 30 days following their receipt of notice from
the Company that it has elected not to purchase such Stock.
(b) Termination of Employment of Management Shareholders
other than Rifkin or Kimmel.
(i) Termination Without Cause; Death;
Disability. If the employment of a Management Shareholder
other than Scott Rifkin or Alan Kimmel with the Company is
terminated (A) without "cause" as contemplated in such
Management Shareholder's employment agreement, or (B) by the
Management Shareholder for any reason constituting
"constructive termination" as defined in such Management
Shareholder's employment agreement, then the remaining
Management Shareholders shall have the option for a period of
60 days from the date of such termination to purchase (in such
proportions as they shall agree or, if they cannot agree, in
proportion to their ownership of outstanding Common Stock
other than the Stock of the terminated Management
Shareholder), and if such option is exercised, the terminated
Management Shareholder may, but shall not be obligated to,
sell all of the Stock held by such terminated Management
Shareholder (the "Terminated Manager's Stock") on terms
substantially identical to those set forth in Section 5(e)
(other than subsections (iii) and (iv) thereof) and at the
price set forth in Section 5(d). If the employment of a
Management Shareholder other than Scott Rifkin or Alan Kimmel
with the Company is terminated due to death or Disability (as
such terms are defined in such Management Shareholder's
employment agreement, then such Management Shareholder's or
such Management Shareholder's personal representative may, for
a period of sixty (60) days from the date of appointment of
such personal representative or disability, as the case maybe,
offer to the remaining Management Shareholder's the option to
purchase (in such proportions as they shall agree or, if they
cannot agree, in proportion to their ownership of outstanding
Common Stock other than the Stock of the deceased or disabled
Management Shareholder) and if
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such option is exercised, the decreased or disabled Management
Shareholder may, but shall not be obligated to, sell all of
such Terminated Manager's Stock on terms substantially
identical to those set forth in Section 5(e) (other than
subsections (iii) and (iv) thereof) and at the price set forth
in Section 5(d) If all of the Terminated Manager's Stock is
not purchased by the other Management Shareholders, the
Company shall, upon such Management Shareholder's request,
purchase, within 90 days after the date of said termination,
and such terminated Management Shareholder shall sell, all of
the Terminated Manager's Stock at the price set forth in
Section 5(d), and upon the terms set forth in Section 5(e)
hereof.
(ii) Termination Under other Circumstances.
If the employment of a Management Shareholder other than Scott
Rifkin or Alan Kimmel with the Company is terminated (A) by
the Company for "cause" as contemplated by his employment
agreement, or, if no such agreement is in effect, for "good
cause" under applicable law, or (B) by the Management
Shareholder for reasons not constituting "constructive
termination" under his employment agreement, then the Company
shall have the option (but not the obligation) to purchase,
within 90 days after the date of such termination, and, if
such option is exercised, such Management Shareholder shall
sell, all of the shares of Stock held by such Management
Shareholder at a price equal to the lesser of such Management
Shareholder's acquisition cost for his stock or $1.00 per
share, and upon the terms set forth in Section 5(e) hereof. If
the employment of a Management Shareholder other than Scott
Rifkin or Alan Kimmel is terminated due to expiration of the
term of his employment agreement, then the Company shall have
the option (but not the obligation) to purchase, within 90
days after the date of such termination, and, if such option
is exercised, such Management Shareholder shall sell, all of
the shares of Stock held by such Management Shareholder at a
price determined pursuant to Section 5(d) and upon the terms
set forth in Section 5(e).
(iii) Change in Control. If the employment
of a Management Shareholder other than Scott Rifkin or Alan
Kimmel with the Company is terminated by the Company without
"cause" as contemplated in such Management Shareholder's
employment agreement or by such Management Shareholder for
reasons constituting "constructive termination" under such
Management Shareholder's employment agreement, and there
occurs a Change in Control within the first twelve months
following the date of such termination, the Company agrees to
pay or cause to be paid to such terminated Management
Shareholder (or to his heirs, legatees and/or guardians), in
addition to the purchase price for such terminated Management
Shareholder's Stock, the value of such terminated Management
Shareholder's share of any consideration that would have been
payable to such terminated Management Shareholder
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(less any such consideration actually received by such
Management Shareholder as a result of a sale of his Stock,
whether to another Management Shareholder, the Company or
another person) upon, and as a result of, such a Change in
Control of the Company within such twelve-month period. Such
payment shall be made by the Company when and as the Company
or the other the Company's remaining Shareholders receive
consideration as a result of such a Change in Control, and
shall be paid by the Company based upon such terminated
Management Shareholder's pro-rata equity interest in the
Company at the time of termination. Any payment by the Company
pursuant to this Section as a result of a Change in Control
may, at the Company's option, be made by delivery of any
combination of cash, promissory notes with a term of not more
than ten years and interest at a rate calculated pursuant to
Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), or an appropriate in-kind distribution
of any consideration received by the Company or its
Shareholders as a result of such Change in Control.
(c) Termination of Employment of Rifkin and Kimmel.
(i) Termination of Employment For Good
Cause. If the employment of either Scott Rifkin or Alan Kimmel
(as the case may be, a "Terminated Senior Manager") with the
Company is terminated (A) by the Company for any of the
specific reasons enumerated in Section 4.3(a) of their
respective employment agreements (or, if no such agreement is
then in effect, for "good cause" under applicable law) or (B)
by the Terminated Senior Manager for any reason not
constituting "constructive termination" as defined in Section
4.4(b) of such Terminated Senior Manager's employment
agreement, then the Company shall have the option (but not the
obligation) to purchase, within 90 days after the date of
termination, and, if such option is exercised, such Terminated
Senior Manager shall sell, all of the Stock then registered in
such Terminated Senior Manager's name or held, in trust or
otherwise, for his benefit at a price equal to the lesser of
such Terminated Senior Manager's acquisition cost for such
Stock or $1.00 per share, and upon the terms provided in
Section 5(e) hereof; provided, however, that the provisions of
this Section 5(c)(i) shall not apply to any shares of capital
stock of the Company held by such Terminated Senior Manager on
January 31, 1997 (or received as a distribution on or in
respect of such shares after January 31, 1997 as the result of
any recapitalization, stock split or similar event).
(ii) Death; Disability. Upon each of (A) the
Disability of either Scott Rifkin or Alan Kimmel (as the case
may be, a "Disabled Shareholder"), and (B) such Shareholder's
death, and the appointment and qualification of his personal
representative, for a period of 60 days from the date of such
appointment and qualification or Disability, as the case may
be, such personal representative or such Disabled Shareholder,
as the case may be, may offer to the other Management
Shareholders the
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option to purchase (in such proportions as they shall agree
upon, or if they cannot agree, in proportion to their
respective ownership of outstanding Common Stock), all of the
shares of Stock held by such personal representative, or
Disabled Shareholder, on terms substantially identical to
those set forth in Section 5(e) hereof (other than subsections
(iii) and (iv) thereof) and at a price determined in
accordance with the terms of Section 5(d) hereof. If the
option to purchase all of the shares of Stock so offered is
not exercised or accepted within such 60-day period, then such
Disabled Shareholder or such personal representative, as the
case may be, shall be entitled to sell, by providing written
notice to the Company, and the Company shall be required to
purchase upon receipt of such notice, all or a portion of such
shares of Stock held by the Disabled Shareholder or such
personal representative as such number of shares set forth in
such written notice, at the price and upon the terms provided
in Sections 5(d) and 5(e) hereof.
(iii) Termination of Employment Under Other
Circumstances. If a Terminated Senior Manager's employment is
terminated (A) by the Company without "good cause" as
contemplated by his employment agreement or (B) by such
Terminated Senior Manager for reasons constituting
"constructive termination" under his employment agreement,
then the Company shall purchase, within 90 days after the date
of such termination, and such Terminated Senior Manager shall
sell, Stock acquired by such Terminated Senior Manager after
January 31, 1997 (other than Stock acquired pursuant to a
distribution, made with respect to a recapitalization, stock
split or similar event, on or in respect of Stock held on
January 31, 1997) at the price set forth in Section 5(d) and
subject to the terms set forth in Section 5(e). If the
employment of a Terminated Senior Manager is terminated due to
expiration of the term of his employment agreement, then the
Company shall have the option (but not the obligation) to
purchase, within 90 days after the date of such termination,
and, if such option is exercised, such terminated Senior
Manager shall sell, all of the shares of Stock held by such
terminated Senior Manager or by a trust or otherwise for his
benefit, at a price determined pursuant to Section 5(d) and
upon the terms set forth in Section 5(e).
(d) Purchase Price. With respect to purchases of Stock made
pursuant to Sections 5(a), 5(b)(i), the second sentence of 5(b)(ii), and
5(c)(ii) and (iii), if the purchaser of Stock hereunder, on the one hand, and
the Transferring Shareholder, on the other hand, agree in writing as to the
purchase price for such Stock, such agreed price shall be the purchase price for
such Stock. If the purchase price of such Stock is not agreed upon (x) with
respect to an event described in Sections 5(a) or 5(b)(i), within 30 days from
the date of such event and (y) with respect to an event described in Sections
5(c)(ii) and (iii), within 30 days after the receipt of the notice required to
be determined thereunder or, with respect to the death of a Management
Shareholder other than Scott Rifkin or Alan Kimmel, after the appointment and
qualification of such
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<PAGE>
deceased Management Shareholder's personal representative, then, the purchase
price of such Stock shall be its Fair Market Value. The Transferring Shareholder
and the Company shall each pay one-half of all expenses incurred in connection
with the determination of the Fair Market Value of Stock under this Section
5(d).
(e) Payment of Purchase Price. The payment of any purchase
price for Stock Transferred pursuant to this Section 5 hereof may be made on
such terms as are agreed upon by the parties or, absent such agreement, as
follows:
(i) Cash. Subject to the terms of
subparagraph (iv) hereof and, with respect to any Involuntary
Transfer, subject to such other terms and conditions as are
required by any court exercising jurisdiction over any
Involuntary Transfer Shareholder with respect to its Stock or
over any assignee, trustee in bankruptcy or
successor-in-interest with respect to such Involuntary
Transfer Shareholder, as the case may be, (A) in the event of
any Transfer pursuant to this Section 5 (other than as a
result of the death of a Management Shareholder), (1) if the
Company is the purchaser, 10% of the total purchase price of
the Stock shall be paid in cash by bank wire transfer by the
Company on the Closing Date, and (2) if anyone other than the
Company is the purchaser, the entire amount of the purchase
price of the Stock shall be paid in cash by bank wire transfer
by such purchaser(s) on the Closing Date, and (B) in the event
of any Transfer as a result of the death of a Management
Shareholder, the Company shall pay in cash by bank wire
transfer on the Closing Date the greater of (1) the proceeds
of any life insurance policy or policies purchased by the
Company as contemplated by Section 5(f) (but not in excess of
the purchase price to be paid by the Company pursuant to this
Section 5) and (2) 10% of the total purchase price to be paid
by the Company with respect to the Stock formerly held by such
deceased Management Shareholder. Notwithstanding the
foregoing, if the Company is a purchaser of Stock pursuant to
this Section 5 but is prohibited by law and/or the Restated
Articles to make all or any portion of any cash payment
otherwise payable on the Closing Date with respect to the
purchase of such Stock, the Company shall pay the maximum
amount permitted by law and the Restated Articles, if any, and
the balance of such purchase price shall be made in accordance
with Section 5(e)(ii).
(ii) Promissory Note. After payment in cash
of the amount set forth in Sections 5(e)(i), the balance of
the purchase price to be paid by the Company pursuant to this
Section 5 shall be represented by a promissory note of the
Company, payable in seven equal annual installments of
principal and interest, the first of which shall be due and
payable on the first anniversary of delivery of the Note, and
otherwise in form and substance satisfactory to the Company
and the Transferring Shareholder or the representative thereof
(the "Note"). Interest shall accrue on, and be payable with,
the unpaid balance of the Note from the Closing Date at a rate
equal to the applicable federal rate for long-term
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<PAGE>
debt instruments under Code Section 1274(d)(1) in effect as of
the Closing Date. As security for payment of the amounts due
under the Note, the Company shall, to the extent provided by
agreements and instruments to which the Company is a party,
pledge to the Transferring Shareholder the Stock being
purchased pursuant to this Section 5 until such time as all
payments due thereunder have been paid in full; provided that
such selling Shareholder shall not be entitled to exercise any
voting or other rights with respect to such shares of Stock so
long as the Company is not in default of any payment due under
such note; provided, further, that the Company's obligations
under the Note shall be expressly subordinated to the rights
and preferences, including, without limitation, with respect
to dividends and liquidation, of the Series D Preferred.
(iii) Debt Due From Shareholder. Any debt
due by a Transferring Shareholder to the Company shall be
payable according to its terms, as shall any debt due by the
Company to the Transferring Shareholder; provided, however,
that, regardless of the terms of any such debt due by the
Shareholder to the Company, any cash payment due under Section
5(e)(i), as well as any insurance proceeds payable under
Section 5(f) with respect to the purchase of the Transferring
Shareholder's Stock, first, shall be applied to offset any
such indebtedness until all such indebtedness is fully
discharged and, second, as payment of the purchase price for
the Transferring Shareholder's Stock. The provisions of this
subparagraph (iii) shall also apply to any purchases of Stock
by the Company pursuant to Section 6 hereof.
(iv) Involuntary Transfers. The Company
shall settle with the assignee, trustee in bankruptcy,
attaching court or officer or successor-in-interest holding
Stock received in an Involuntary Transfer by taking any or all
such Stock in execution and paying to such Persons out of the
purchase price for such Stock, calculated in accordance with
Section 5(d), an amount equal to not more than the sum of the
Shareholder's indebtedness and proper items of expense. The
Company shall pay the balance, if any, of the purchase price
for such Stock to the Transferring Shareholder in accordance
with this Section 5(e).
(v) Closing. The closing of a purchase and
sale of Stock in accordance with this Section 5 (the
"Closing"), unless otherwise provided herein or agreed to in
writing by the purchaser(s) and the Transferring Shareholder,
shall be held at the principal place of business of the
Company (1) 30 days after (x) with respect to any option to
purchase such Stock pursuant to this Section 5, the later of
(i) the date that the last applicable period for exercising an
unexercised option to purchase has lapsed and (ii) the date an
option to purchase is accepted or exercised, (y) in connection
with the Disability of Scott Rifkin or Alan Kimmel, the date
of delivery of the notice required with respect thereto, and
(z) the occurrence of any event set forth in Section 5(a)
(other than
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death of a Management Shareholder), and (2) with respect to
the death of a Management Shareholder, 90 days after the
appointment and qualification of such deceased Management
Shareholder's personal representative (collectively, the
"Closing Date"); provided that, if determination of a purchase
price requires a determination of Fair Market Value, then the
Closing Date shall not be later than 30 days after such
determination. At the Closing, upon payment of the purchase
price (including delivery of the Note), the certificates
representing the Stock to be purchased and sold pursuant to
this Section 5 shall be delivered by the Transferring
Shareholder (or his personal or legal representatives, as the
case may be) to the purchaser(s) appropriately free and clear
of all liens and endorsed in blank for transfer. If the
certificates representing any shares of Stock to be so
transferred have not been surrendered by the selling
Shareholder, all rights of the holder thereof hereunder with
respect to said Stock (including, without limitation, voting
rights) nonetheless shall cease and terminate without any
further action by any Person.
(vi) Certain Limitations. Notwithstanding
any other provision of this Section 5 to the contrary, the
Company shall not purchase, redeem or otherwise acquire any
Stock from any Shareholder at a purchase price equal to the
Fair Market Value thereof unless and until any and all accrued
but unpaid dividends on Preferred Stock, and any interest
having accrued thereon, shall have been paid in full.
(f) Life Insurance. As soon as practicable following the
execution of this Agreement, the Company shall use its commercially reasonable
best efforts to purchase a life insurance policy on the life of each Management
Shareholder in such amounts, if any, as the Board deems reasonable and
appropriate. The Company shall be the owner and beneficiary of each such policy,
and any proceeds received thereunder shall be held by the Company in trust for
the purposes of satisfying the Company's obligations under this Section 5. Each
Management Shareholder agrees to cooperate with the Company in obtaining, and in
keeping in full force and effect, all such policies. The Company shall maintain
all each such insurance policy in full force and effect and shall not, without
the prior written consent of the affected Management Shareholder, cancel any
such policy or take or omit to take any action that might give rise to the
termination or cancellation thereof. The Company shall pay premiums on all such
insurance policies as they become due. The Company may, when it deems
appropriate, apply any dividends declared and paid on such policies to the
payment of premiums. Notwithstanding the foregoing, the Company shall have no
obligations under this Section 5(f) with respect to purchasing a life insurance
policy covering the life of a Management Shareholder to the extent a Management
Shareholder is either uninsurable or may not be insured as herein contemplated
upon commercially reasonable terms. If a Management Shareholder Transfers all of
his Stock during his lifetime pursuant to this Section 5, or if this Agreement
is terminated without being superseded by a similar agreement prior to such
Management Shareholder's death, such Management Shareholder, or any designee of
such Management Shareholder, shall have the right, during the 60-day period
beginning with the date of Transfer or
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termination of this Agreement, to purchase any life insurance policy insuring
the life of such Management Shareholder owned by the Company by paying the
Company an amount equal to the cash surrender value of such insurance policy
(determined after payment of all policy loans incurred to pay premiums due
thereunder and interest thereon) as of the date of purchase, plus the unearned
portion of any premiums that shall have been paid thereon.
(g) Irrevocable Proxy. In order to ensure that the Company may
lawfully effect the transactions contemplated by this Section 5, each Management
Shareholder hereby irrevocably appoints the duly elected Secretary of the
Company as his, her or its true and lawful proxy and attorney-in-fact, with full
power of substitution, to vote all of his Voting Shares of the Company to
approve each aspect the transactions contemplated by this Section 5 and to take
all such other actions as are necessary to enforce the rights of the Company
under this Section 5. The Secretary of the Company may exercise the irrevocable
proxy granted to him hereunder at any time a transaction mandated by this
Section 5 requires approval of a Shareholder. The proxies and powers granted by
each Shareholder pursuant to this Section 5 are coupled with an interest and are
given to secure the performance of the Shareholders' respective obligations
under this Section 5. Such proxies and powers shall survive the death,
incompetence and disability of each Shareholder. Such proxies and powers will be
effective until a Qualified IPO, at which time such proxies and powers shall
terminate.
Section 6. Rights of First Offer. In addition to and not in
limitation of any other restrictions on Transfers of Stock contained in this
Agreement, any Transfers of Stock by a Shareholder shall be consummated only in
accordance with the following procedures:
(a) The Transferring Shareholder shall first deliver to the
Company and each Major Shareholder other than the Transferring Shareholder and,
if the Transferring Shareholder is a Management Shareholder, each other
Management Shareholder (collectively, the "Offered Shareholders") a written
notice (an "Offer Notice") that shall (i) state the Transferring Shareholder's
intention to Transfer Stock to one or more Persons in a bona fide, arm's length
transaction, the amount and type of Stock to be Transferred (the "Subject
Stock"), the purchase price therefor (which shall be payable in cash) and a
summary of the other material terms of the proposed Transfer and (ii) offer the
Company and the Offered Shareholders the option to acquire all or a portion of
such Subject Stock upon the terms and subject to the conditions of the proposed
Transfer as set forth in the Offer Notice (the "Offer). The Offer shall remain
open and irrevocable for the periods set forth below (and, to the extent the
Offer is accepted during such periods, until the consummation of the sale
contemplated by the Offer).
(b) Each Offered Shareholder shall have the right and option,
for a period of 20 days after delivery of the Offer Notice (the "Shareholder
Acceptance Period"), to accept all or any part of the Subject Stock so offered
at the cash purchase price and on the terms stated in the Offer Notice. Such
acceptance shall be made by delivering a written notice to the Company and the
Transferring Shareholder within the
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Shareholder Acceptance Period specifying the maximum number of shares such
Offered Shareholder will purchase (the "First Offer Shares"). If, upon the
expiration of the Shareholder Acceptance Period, the aggregate amount of First
Offer Shares exceeds the amount of Subject Stock, the Subject Stock shall be
allocated among the Offered Shareholders as follows: (i) first, each Offered
Shareholder shall be entitled to purchase no more than its First Offer
Percentage of Subject Stock; (ii) second, if any shares of Subject Stock have
not been allocated for purchase pursuant to (i) above (the "Remaining Shares"),
each Offered Shareholder (an "Oversubscribed Shareholder") that had offered to
purchase a number of shares of Subject Stock in excess of the amount of stock
allocated for purchase to it in accordance with previous allocations of such
shares of Subject Stock, shall be entitled to purchase an amount of Remaining
Shares equal to no more than its First Offer Percentage (treating only
Oversubscribed Shareholders as Offered Shareholders for these purposes) of the
Remaining Shares; and (iii) third, the process set forth in (ii) above shall be
repeated with respect to any shares of Subject Stock not allocated for purchase
until all shares of Subject Stock are allocated for purchase.
(c) If the Offered Shareholders shall fail to accept all of
the Subject Stock offered pursuant to, or shall reject in writing, the Offer,
then, upon the earlier of the expiration of the Shareholder Acceptance Period or
the giving of such written notice of rejection or failure to accept such Offer
by the Offered Shareholders, the Company shall have the right and option, for a
period of 20 days (the "Company Acceptance Period"), to accept all or any part
of the Subject Stock not accepted by the Offered Shareholders at the cash
purchase price and on the terms stated in the Offer Notice. Such acceptance
shall be made by delivering a written notice to the Transferring Shareholder and
each of the Offered Shareholders within the Company Acceptance Period.
(d) If effective acceptance shall not be received pursuant to
Sections 6(b) and/or 6(c) above with respect to all of the Subject Stock offered
for sale pursuant to the Offer Notice, then the Transferring Shareholder may
Transfer all or any portion of the Stock so offered for sale and not so accepted
at a cash price not less than the price, and on terms not more favorable to the
purchaser thereof than the terms, stated in the Offer Notice at any time within
90 days after the expiration of the Shareholder Acceptance Period (the "Sale
Period"). In the event that all of the Stock is not sold by the Transferring
Shareholder during the Sale Period, the right of the Transferring Shareholder to
Transfer such Stock shall expire and the obligations of this Section 6 shall be
reinstated.
(e) All Transfers of Subject Stock to the Company and/or the
Offered Shareholders pursuant to this Section 6 shall be made free and clear of
all liens and shall be consummated contemporaneously at the offices of the
Company on the later of (i) a mutually satisfactory business day within 20 days
after the expiration of the later of the Company Acceptance Period or the
Shareholder Acceptance Period, as applicable, and (ii) the fifth business day
following the expiration or termination of all waiting periods under the HSR Act
applicable to such Transfers, or at such other time and/or place as the parties
may agree. The delivery of certificates or other instruments
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evidencing such Subject Stock duly endorsed for Transfer shall be made on such
date against payment of the purchase price for such Subject Stock.
(f) The requirements of this Section 6 shall not apply to (i)
any Transfer of Stock by a Shareholder to an Affiliate of such Shareholder, (ii)
any Transfer of Stock pursuant to Sections 5 or 8 of this Agreement or (iii) any
Transfer of Stock pursuant to a Public Sale.
Section 7. Tag-Along Rights.
(a) No Shareholder shall Transfer any Stock owned by such
Shareholder without complying with the terms and conditions set forth in this
Section 7 (after having complied with the provisions of Section 6).
(b) Any Shareholder desiring to Transfer any shares of Stock
(the "Tag-Along Initiator") shall, after expiration of all required notice
periods under Section 6, give not less than 20 days prior written notice of such
intended Transfer to the holders of Preferred Stock (each, a "Tag-Along
Offeree") and to the Company. Such notice (the "Tag-Along Notice") shall set
forth the terms and conditions of such proposed Transfer, including the name of
the proposed Transferee, the number of shares proposed to be Transferred by the
Tag-Along Initiator (the "Tag-Along Shares"), the purchase price per share
proposed to be paid therefor and the payment terms and type of Transfer to be
effectuated. Within 10 days after delivery of the Tag-Along Notice, each
Tag-Along Offeree shall, by written notice to the Tag-Along Initiator and the
Company, have the opportunity and right to sell to the Transferee in such
proposed Transfer (upon the same terms and conditions as the Tag-Along
Initiator) up to that number of shares of such Stock owned by such Tag-Along
Offeree as shall equal the product of (x) a fraction, the numerator of which is
the number of shares of Stock owned by such Tag-Along Offeree as of the date of
the Tag-Along Notice and the denominator of which is the aggregate number of
shares of Stock owned as of the date of the Tag-Along Notice by all Tag-Along
Offerees and the Tag-Along Initiator multiplied by (y) the number of Tag-Along
Shares. No Person may Transfer shares in any transaction that is subject to this
Section 7(b) unless the Transferee agrees to be bound by and complies with the
terms of this Agreement.
(c) At the closing of any proposed Transfer in respect of
which a Tag-Along Notice has been delivered, the Tag-Along Initiator together
with the Tag-Along Offeree electing to sell shares, shall deliver, free and
clear of all liens, to the proposed Transferee certificates evidencing the
shares to be sold thereto duly endorsed with Transfer powers and shall receive
in exchange therefore the consideration to be paid or delivered by the proposed
Transferee in respect of such shares as described in the Tag-Along Notice.
(d) The provisions of this Section 7 shall not apply to (i)
any Public Sale, (ii) any Transfer by a Shareholder to Affiliates of such
Shareholder or (iii) any Transfers pursuant to Sections 5, 6 or 8.
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Section 8. Drag-Along Rights.
(a) If Beacon, as long as it holds at least the Pre-IPO
Threshold (the "Drag-Along 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 "Drag-Along Transaction") to an unrelated and
unaffiliated third party all of the shares of Stock held by the Drag-Along
Initiator, then, upon 30 days written notice from the Drag-Along Initiator to
the other Shareholders 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 Shareholders, each other 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 of Stock in
the same transaction at the closing thereof (and will deliver certificates for
all of his shares of Stock at the closing, free and clear of all liens, claims,
or encumbrances) and the consideration paid in such transaction shall first be
applied to pay the liquidation value of all outstanding Preferred Stock in
accordance with the terms thereof and then pro rata among all holders of Stock
on an as converted basis; provided, however, that if within 30 days of receipt
of a notice from the Drag-Along Initiator as provided in this Section 8, the
Company irrevocably commits, in writing, either (i) to use its best efforts to
complete a Qualified IPO or (ii) to purchase all of the shares of Stock of the
Drag-Along Initiator for a cash amount equal to the Drag-Along Value (as defined
below) and the Company demonstrates to the satisfaction of the Drag-Along
Initiator that the Company will be able to complete such purchase, then the
closing of the Drag-Along Transaction shall be suspended until the earlier of
(x) 120 days after the Company so commits or (y) the date the Company determines
that it will be unable to complete the Qualified IPO within such 120-day period.
If the Company fails to either (A) complete the Qualified IPO within 120 days or
(B) purchase the Drag-Along Initiator's shares at the Drag-Along Value, the
Drag-Along Initiator shall have the right to compel the Shareholders to satisfy
the general provisions of this Section 8 in order to consummate the Drag-Along
Transaction without further delay. As used in this Section 8, "Drag-Along Value"
means, with respect to the consideration the Drag-Along Initiator would receive
in connection with the Drag-Along Transaction, the value of such consideration,
which, to the extent other than cash, shall take into account, in addition to
the cash value thereof, the assumptions and reasonable expectations underlying
the Drag-Along Transaction, including, without limitation, any anticipated tax
benefit, synergies or other projected economic benefits, as confirmed by an
independent investment bank reasonably satisfactory to the Drag-Along Initiator
and the Company.
(b) The provisions of this Section 8 shall not apply to (i)
any Transfer prior to the date two years after the date hereof, (ii) any Public
Sale or (iii) any Transfer by the Drag-Along Initiator to an Affiliate of the
Drag-Along Initiator.
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Section 9. Issuance Rights. The Company shall not issue,
sell or exchange, or agree to issue, sell or exchange (collectively, "Issue,"
and any issuance, sale or exchange resulting therefrom, an "Issuance") any
shares of Stock (other than Excluded Securities), except as authorized by the
Board and in accordance with the following procedures:
(a) The Company shall deliver to Beacon a written notice (an
"Issuance Notice") that shall (i) state the Company's intention to Issue Stock
to one or more Persons, the amount and type of Stock to be Issued (the "Issuance
Stock"), the purchase price therefor and a summary of the other material terms
of the proposed Issuance and (ii) offer Beacon the option to acquire all or any
part of the Issuance Stock (the "Issuance Offer"). The Issuance Offer shall
remain open and irrevocable for the periods set forth below (and, to the extent
the Issuance Offer is accepted during such periods, until the consummation of
the Issuance contemplated by the Issuance Offer). Beacon shall have the right
and option, for a period of 30 days after delivery of the Issuance Notice (the
"Issuance Acceptance Period"), to accept all or any part of the Issuance Stock
at the purchase price and on the terms stated in the Issuance Notice. Such
acceptance shall be made by delivering a written notice to the Company by Beacon
within the Issuance Acceptance Period specifying the maximum number of shares of
the Issuance Stock that Beacon will purchase.
(b) If effective acceptance shall not be received pursuant to
Section 9(a) above with respect to all of the Issuance Stock offered for sale
pursuant to the Issuance Notice, then the Company may Issue all or any portion
of such Stock so offered for sale and not so accepted, at a price not less than
the price, and on terms not more favorable to the purchaser thereof than the
terms, stated in the Issuance Notice at any time within 90 days after the
expiration of the Issuance Acceptance Period (the "Issuance Period"). In the
event that all of the Issuance Stock is not Issued by the Company during the
Issuance Period, the right of the Company to Issue such unsold Issuance Stock
shall expire and the obligations of this Section 9 shall be reinstated.
(c) All sales of Issuance Stock to Beacon subject to any
Issuance Notice shall be consummated contemporaneously at the offices of the
Company on the later of (i) a mutually satisfactory business day within 20 days
after the expiration of the Issuance Acceptance Period or (ii) the fifth
business day following the expiration or termination of all waiting periods
under the HSR Act, applicable to such Issuance, or at such other time and/or
place as the Company and Beacon may agree. The delivery of certificates or other
instruments evidencing such Issuance Stock shall be made by the Company on such
date against payment of the purchase price for such Issuance Stock.
(d) The provisions of this Section 9 shall not apply to (i)
any Excluded Securities, (ii) any Issuance by the Company in connection with an
IPO or any subsequent registered public offering of Stock, (iii) any conversion
of Preferred Stock to Common Stock pursuant to the terms of the Restated
Articles or (iv) issuance by the Company to physicians in connection with an
acquisition approved by the Board or Executive Committee.
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Section 10. Holdback Agreement; Adjustments.
(a) Each Shareholder agrees that, to the extent requested in
writing by a managing underwriter of an IPO or any underwritten public offering
effected by the Company within three years after an IPO, it will not Transfer
any Stock or any other equity security of the Company or any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than as part of such underwritten public offering) during the
time period reasonably requested by the managing underwriter.
(b) The Company shall take all reasonable steps necessary to
effect a subdivision of shares if, with respect to any demand registration
request under the Beacon Registration Agreement or the GHV Registration
Agreement, in the reasonable judgment of the managing underwriter for the
offering in respect of such demand registration, such subdivision would enhance
the marketability of the securities proposed to be registered thereunder. Each
Shareholder agrees to vote all of its shares of Stock in a manner, and to take
all other actions necessary, to permit the Company, to carry out the intent of
the preceding sentence including, without limitation, voting in favor of an
amendment to the Restated Articles in order to increase the number of authorized
shares of capital stock of the Company.
Section 11. Certain Covenants.
11.1. Financial Statements and Other Information. (a) Prior
to an IPO, the Company shall deliver to each holder of at least 10% of the
outstanding Common Stock at the time of such delivery:
(i) within 20 days after the end of each of month,
unaudited consolidating and consolidated statements of income and cash
flows of the Company for such month, and unaudited consolidating and
consolidated balance sheets of the Company as of the end of such month,
setting forth in each case comparisons to the same month of the
preceding fiscal year, all prepared in accordance with GAAP,
consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments;
(ii) within 45 days after the end of each of the
first three quarterly accounting periods in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of
the Company for such fiscal quarter, and unaudited consolidating and
consolidated balance sheets of the Company as of the end of such fiscal
quarter, setting forth in each case comparisons to the same quarter of
the preceding fiscal year, all prepared in accordance with GAAP,
consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments;
(iii) within 105 days after the end of each fiscal
year, audited consolidating and consolidated statements of income and
cash flows of the Company for such fiscal year, and consolidating and
consolidated balance
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sheets of the Company as of the end of such fiscal year, setting forth
in each case comparisons to the preceding fiscal year, all prepared in
accordance with GAAP, consistently applied, and accompanied by, with
respect to the consolidated portions of such statements, an opinion of
a "Big Six" independent accounting firm that is unqualified with
respect to the scope of such firm's examination and the Company's
status as a going concern;
(iv) promptly (but in any event within five business
days) after the end of each month, copies of all reports, financial
statements, or other information provided to the members of the Board
and/or senior management of the Company during such month;
(v) promptly (but in any event within five business
days) after the discovery or receipt of notice of any default under any
material agreement to which the Company and/or any of its Subsidiaries
is a party that could have a material adverse effect on the Company or
any Subsidiary, an Officer's Certificate specifying the nature and
period of existence thereof and what actions the Company has taken and
proposes to take with respect thereto;
(vi) promptly (but in any event within three business
days) after transmission thereof, copies of all financial statements,
proxy statements, reports and any other general written communications
that the Company sends to its shareholders and copies of all
registration statements and all regular, special or periodic reports
that it files, or any of its officers or directors file with respect to
the Company, with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed; and
(vii) with reasonable promptness, such other
information and financial data concerning the Company as any Person
entitled to receive information under this Section 11.1 may reasonably
request.
(b) Each of the financial statements referred to in this
Section 11.1 shall be true and correct in all material respects, and shall
fairly and accurately reflect the financial condition and operating results of
the Company as of the dates and for the periods stated therein, subject in the
case of the unaudited financial statements to changes resulting from normal
year-end adjustments.
11.2. Restrictions. Prior to the consummation of a Qualified
IPO, the Company shall not, directly or indirectly, and shall not permit any of
its Subsidiaries to, take any of the following actions without the prior written
consent of Beacon, as long as Beacon meets or exceeds the Pre-IPO Threshold:
(a) consolidate or merge with or into any Person or any
similar business combination transaction (including a sale of all or
substantially all of its assets) or effect any transaction or series of
transactions in which more than 33-1/3% of the Company's voting securities are
transferred to another Person, except any such
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transaction or series of transactions, as the case may be, involving only
wholly-owned Subsidiaries of the Company;
(b) amend or repeal any provision of, or add any provision to,
the Restated Articles or By-laws or otherwise alter or change the preferences,
rights, privileges or powers of the Series D Preferred;
(c) create or designate, authorize the issuance of, or issue
or sell any new series or class of securities or increase the authorized number
of, authorize the issuance of, or issue (other than in connection with the
exercise of any options or warrants outstanding as of the date hereof to
purchase shares of Common Stock or Preferred Stock, or the conversion of any
Common Stock Equivalents outstanding as of the date hereof and other than as
required by the terms of any of the Preferred Stock and conversion of principal
and accrued interest on the Convertible Subordinated Note issued by the Company
to Genesis Holdings, Inc. and dated January 31, 1997), any additional shares of
Common Stock or Preferred Stock;
(d) increase the number of authorized directors comprising
the Board above twenty;
(e) voluntarily liquidate, dissolve or wind up the
Company or take any action that would result in the liquidation, dissolution or
winding up of the Company;
(f) pay, declare or set aside any sums for the payment of, any
dividends, or make any distributions on, any shares of its capital stock or
other equity securities except as required by the terms of the Preferred Stock
and the Convertible Subordinated Note dated January 31, 1997;
(g) except for (i) redemptions of shares of Common Stock and
Preferred Stock required by the Restated Articles or (ii) redemptions of shares
of Common Stock which the Company is obligated to effect in connection with the
exercise by a physician of resale rights under agreements pursuant to which the
physician's practice was acquired by the Company, redeem, purchase or otherwise
acquire, any of its capital stock or other equity securities (including, without
limitation, warrants, options and other rights to acquire any of its capital
stock or other equity securities directly or indirectly) or redeem, purchase or
make any payments with respect to any stock appreciation rights or phantom stock
plans;
(h) purchase, acquire or obtain any capital stock or other
proprietary interest, directly or indirectly, in any other entity or all or
substantially all of the business or assets of another Person for consideration
(including assumed liabilities) in excess of $750,000;
(i) enter into or commit to enter any joint ventures or any
partnerships or establish any non wholly-owned subsidiaries, in each case, where
the contributions or proposed investments by the Company is in excess of
$750,000 in cash or assets;
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(j) sell, lease, transfer or otherwise dispose of any asset or
group of assets, in one or more transactions, in an aggregate amount (as to the
Company and all of its Subsidiaries), for consideration in excess of $750,000;
(k) create, incur, assume or suffer to exist any indebtedness
of the Company or any of its subsidiaries (which shall include for purposes
hereof capitalized lease obligations and guarantees or other contingent
obligations for indebtedness for borrowed money) in an aggregate amount (as to
the Company and all of its Subsidiaries) in excess of $750,000, excluding
indebtedness that is outstanding as of the date hereof and replacement
indebtedness thereof on terms and conditions approved by Beacon;
(l) mortgage, encumber, create, incur or suffer to exist,
liens on its assets, in an aggregate amount (as to the Company and all of its
Subsidiaries) in excess of $750,000 excluding liens on assets that exist as of
the date hereof;
(m) amend, modify or grant any waiver under any material
provisions of any employment or non-competition agreement to which the Company,
any of its affiliates, or any professional corporations or professional
associations with which the Company has a contractual relationship, is a party
or is bound;
(n) adopt or approve the annual budget or business plan of
the Company; or
(o) agree or otherwise commit to take any actions set forth
in the foregoing paragraphs (a) through (n).
11.3. Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Class C Common Stock, solely for the purpose of issuance upon the conversion of
the Preferred Stock, such number of shares of Class C Common Stock issuable upon
the conversion of all outstanding shares of Preferred Stock. All shares of
Common Stock that are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Class C Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Class C Common Stock may be listed
(except for official notice of issuance that shall be immediately transmitted by
the Company upon issuance).
11.4. Public Disclosures. The Company shall not disclose, nor
shall it permit any of its Subsidiaries to disclose, any Major Shareholder's
name or identity as an investor in the Company or any material information
related to this Agreement in any press release or other public announcement or
in any document or material filed with any governmental entity, without the
prior written consent of such Major Shareholder, unless such disclosure is
required by applicable law or governmental regulations or by order of a court of
competent jurisdiction, in which case prior to making such disclosure
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<PAGE>
the Company shall give written notice to such Major Shareholder describing in
reasonable detail the proposed content of such disclosure and shall permit such
Major Shareholder to review and comment upon the form and substance of such
disclosure.
11.5. Additional Shareholders. The Company shall not issue any
Common Stock Equivalents to any person or entity that is not a party to this
Agreement without requiring, as a condition precedent to such issuance, that
such person or entity execute a counterpart to this Agreement or the
Shareholders Letter (as defined in the Purchase Agreement); provided that
non-executive employees of the Company to whom Common Stock Equivalents are
issued pursuant to any employment agreement or any employee stock option, stock
purchase or similar plan of the Company shall not be required to execute this
Agreement or a Shareholders Letter so long as the Company, as a condition of
such issuance, retains the right to repurchase such Common Stock Equivalents
subject to substantive terms and conditions consistent with those granted to the
Company herein with respect to the repurchase of Stock by the Company from
Management Shareholders.
Section 12. Conflicting Agreements. Each Shareholder
represents and warrants that such Shareholder has not granted and is not a party
to any proxy, voting trust or other agreement that is inconsistent with or
conflicts with any provision of this Agreement, and no holder of Stock shall
grant any proxy or become party to any voting trust or other agreement that is
inconsistent with or conflicts with any provision of this Agreement.
Section 13. Legend. (a) Each Shareholder and the Company shall
take all such action necessary (including exchanging with the Company
certificates representing shares of Stock issued prior to the date hereof) to
cause each certificate representing outstanding shares of Stock to bear a legend
containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE
DISPOSED OF (i) UNLESS (A) REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES AND "BLUE SKY" LAWS OR (B) AN
OPINION OF COUNSEL SATISFACTORY TO DOCTORS HEALTH, INC. (THE
"COMPANY") THAT SUCH REGISTRATION IS NOT NECESSARY HAS BEEN
DELIVERED TO THE COMPANY OR (ii) UNLESS SOLD PURSUANT TO AND
IN COMPLIANCE WITH RULE 144 OF SUCH ACT AND APPLICABLE
SECURITIES OR "BLUE SKY" LAWS."
"IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE RESTRICTIONS ON
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TRANSFER AND TO THE VOTING AGREEMENTS SET FORTH IN THE
SHAREHOLDERS' AND VOTING AGREEMENT DATED AS OF JULY 15, 1997
BY THE COMPANY AND THE PARTIES THERETO, A COPY OF WHICH IS ON
FILE IN THE OFFICE OF THE COMPANY."
(b) The requirement that the above securities legend be placed
upon certificates evidencing shares of Stock shall cease and terminate upon the
earliest of the following events: (i) when such shares are Transferred in an IPO
or (ii) when such shares are Transferred pursuant to Rule 144 under the
Securities Act. Upon the consummation of any event requiring the removal of a
legend hereunder, the Company, upon the surrender of certificates containing
such legend, shall, at its own expense, deliver to the holder of any such shares
as to which the requirement for such legend shall have terminated, one or more
new certificates evidencing such shares not bearing such legend.
Section 14. Representations and Warranties.
(a) Each party hereto represents and warrants to the other
parties hereto as follows:
(i) It has full power and authority to execute,
deliver and perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly
authorized, executed and delivered by it, and constitutes a valid and
binding obligation of it, enforceable against it in accordance with its
terms except to the extent that enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors'
rights generally.
(iii) The execution, delivery and performance of this
Agreement by it does not (x) violate, conflict with, or constitute a
breach of or default under its organizational documents, if any, or any
material agreement to which it is a party or by which it is bound or
(y) violate any law, regulation, order, writ, judgment, injunction or
decree applicable to it.
(iv) No consent or approval of, or filing with, any
governmental or regulatory body is required to be obtained or made by
it in connection with the transactions contemplated hereby.
(v) It is not a party to any agreement that is
inconsistent with the rights of any party hereunder or otherwise
conflicts with the provisions hereof.
(b) Each Shareholder represents and warrants to, and
covenants with, Beacon as follows:
(i) Schedule 14(b) hereto sets forth a list of all
securities of the Company (including, without limitation, shares of
capital stock, convertible
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securities, debentures, etc.) held of record or beneficially owned by
each such Shareholder immediately after the date hereof. All such
securities are free and clear of any liens, encumbrances, rights of
first refusal or other rights of third parties of any nature with
respect thereto.
(ii) Except as set forth on Schedule 14(b) hereto and
other than this Agreement, it is not a party to any contract or
agreement, written or oral, (x) with respect to the securities of the
Company (including, without limitation, any voting agreement, voting
trust, shareholder's agreement, registration rights agreement, etc.) or
(y) otherwise with or relating to the Company, except for employment
agreements entered into in the ordinary course of business.
(iii) In the event a Transaction (as defined in the
Restated Articles) is approved by Beacon, the holders of the Preferred
Stock agree that they shall, if requested by Beacon, exercise their
right to convert all of their shares of Preferred Stock to Common Stock
in connection with such Transaction.
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 of Stock. This
Agreement shall terminate upon the consummation of a Qualified IPO, except that
the provisions of Sections 3.1(b) through 3.11, 10, 11.3 and 16 through 27 shall
survive until, by their respective terms, they are no longer operative.
Section 16. Further Assurances. At any time or from time to
time after the date hereof, the parties agree to cooperate with each other, and
at the request of any other party, to execute and deliver any further
instruments or documents and to take all such further action as the other party
may reasonably request in order to evidence or effectuate the consummation of
the transactions contemplated hereby and to otherwise carry out the intent of
the parties hereunder. Each Shareholder who is a natural Person hereby agrees
that he and/or his personal representative, and each trustee of any permitted
trust hereunder, shall be bound to take any and all actions consistent with the
intent and purposes of this Agreement.
Section 17. Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or any Shareholder unless such
modification, amendment or waiver is approved in writing by the Company,
Shareholders holding at least a majority of the Shares of Common Stock, and by
Beacon so long as Beacon and its Affiliates, collectively, hold, directly and
indirectly, at least the Pre-IPO Threshold. Notwithstanding the foregoing, any
amendment to Sections 4 or 6 hereof shall require approval in writing by the
Company, Shareholders holding at least 66-2/3% of the outstanding Common Stock,
and Beacon. 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.
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Section 18. 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.
Section 19. Entire Agreement. Except as otherwise expressly
set forth herein, this document and the other documents dated the date hereof
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. Without
limiting the generality of the foregoing, to the extent that any of the terms
hereof are inconsistent with the rights or obligations of any Shareholder under
any other agreement with the Company, the terms of this Agreement shall govern.
Section 20. 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 each Shareholder
and their respective successors, assigns, heirs and personal representatives, so
long as they hold Stock. The personal representative of a deceased Shareholder
shall automatically be subject to the terms and conditions of this Agreement.
Each Management Shareholder shall promptly execute a will or codicil to his will
authorizing and directing his personal representatives to perform all of his
obligations under this Agreement, but the failure to execute such a will shall
not affect the rights of the remaining Shareholders or the obligations of their
personal representatives, heirs, descendants, or estates, as provided in this
Agreement.
Section 21. 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.
Section 22. Remedies. Each Shareholder shall be entitled to
enforce its rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that each party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
Section 23. Notices. Any notice provided for in this Agreement
shall be in writing and shall be either personally delivered, or mailed first
class mail (postage
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prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to any other recipient at the address
and/or to the attention of such other person as the recipient party has
specified by prior written notice to the Company. Notices shall be deemed to
have been given hereunder when delivered personally, three days after deposit in
the U.S. mail and one day after deposit with a reputable overnight courier
service. The Company's address is:
Doctors Health, Inc.
10451 Mill Run Circle
Owings Mills, Maryland 21117
Telephone: (410) 654-5800
Facsimile: (410) 654-5806
Attention: Executive Vice President and Director of Legal Services
Section 24. 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.
Section 25. Miscellaneous. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
Section 26. Old Shareholders Agreement. This Agreement
supersedes and replaces the Old Shareholders Agreement in its entirety, and the
Old Shareholders Agreement is hereby terminated, canceled, rescinded and
abrogated.
Section 27. Construction. Where specific language is used to
clarify by example a general statement contained herein, such specific language
shall not be deemed to modify, limit or restrict in any manner the construction
of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any party.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this
Shareholders' and Voting Agreement as of the date first written above.
DOCTORS HEALTH, INC.
By: __________________________________________
Stewart B. Gold, President
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
By: Focus Value Investors, L.L.C.
Its: General Partner
By: Focus Value GP, Inc.
Its: Managing Member
By: _______________________________
Name:
Title:
MEDICAL HOLDINGS LIMITED PARTNERSHIP
(for itself and on behalf of the holders of
393,000 shares of Class B Common Stock)
By: BMGGP, INC., Its General Partner
By: __________________________________________
Scott Rifkin, President
__________________________________________
Stewart B. Gold
__________________________________________
Alan Kimmel, M.D.
__________________________________________
Scott Rifkin, M.D.
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NOAH INVESTMENT, LLC
By: __________________________________________
Alan Rifkin, Designated Member
by: Scott Rifkin, attorney-in-fact for Alan
Rifkin
ST. JOSEPH MEDICAL CENTER, INC.
By: __________________________________________
John Prout, President
GENESIS HEALTH VENTURES, INC.
By: __________________________________________
UNIVERSITY CARE, LLC
By: __________________________________________
Robert Barish, M.D.
Chief Executive Officer
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Schedule 14(b) PM
1. The following is a list of all securities of the Company held of record or
beneficially owned by each Shareholder as of the date hereof.
The Beacon Group III-Focus (i) 2,000,000 shares of Series D
Value Fund, L.P. Preferred Stock
(ii) 1,000,000 shares of Series D
Preferred Stock upon consummation of a
second closing on or before June 30,
1998.
Medical Holdings Limited Partnership 2,200,000 shares of Class B Common
Stock
Stewart B. Gold (i) 600,000 shares of Class A Common
Stock
(ii) Options to purchase 400,000
shares of Class A Common Stock
Scott Rifkin (i) 100,000 shares of Class A Common
Stock
(ii) Option to purchase 100,000
shares of Class A Common Stock @
$25.00 aggregate
(iii). Option to purchase 30,000
shares of Class A Common @ $15 per
share
(iv) Options to purchase 70,000
shares of Class A Common @ $10, $20
and $30 per share
(v) Beneficially owns 33,000 shares
of Class B Common Stock through
Medical Holdings Limited Partnership
Alan Kimmel (i) 100,000 shares of Class A Common
Stock
(ii) Options to purchase 30,000
shares of Class A Common Stock @
$15.00 per share
(iii) Options to purchase 120,000
shares of Class A Common Stock @ $10,
$20 and $25 per share
(iv) Beneficially owns 33,000 shares
of Class B Common Stock through
Medical Holdings Limited Partnership
<PAGE>
NOAH INVESTMENT, LLC 10,000 Shares of Class A Common Stock
ST. JOSEPH MEDICAL CENTER, INC. 1,000,000 shares of Series A Preferred
Stock (subject to subscription
receivable)
GENESIS HEALTH VENTURES, INC. (i) 571,428 shares of Series C
Preferred Stock
(ii) Option to purchase 250,000 shares
of Series C Preferred stock @ $20 per
share
(iii) Warrant to purchase 250,000
shares of Class A Common Stock @ $10
per share
GENESIS HOLDINGS, INC. Convertible Subordinated Note,
convertible into 357,143 shares of
Series C Preferred stock and interest
payable in shares of Series C
Preferred Stock
UNIVERSITYCARE, LLC 438,068 shares of Series B Preferred
stock
2. Section 14.(b)(i). Dr. Scott Rifkin has granted to two employees in his
medical practice (Dr. John Eder and Dr. John Gitter) options to purchase 3,000
shares each of his shares of Class A Common Stock.
3. Section 14(b)(ii). Certain holders of Class B Common Stock have granted to
Medical Holdings Limited Partnership an irrevocable 10 year proxy to vote the
393,000 shares of Class B Common Stock held by them in the aggregate.
2
Exhibit 17.1
7121 Park Heights Avenue
Apartment 710
Baltimore, Maryland 21215
July 8, 1997
Scott Rifkin, M.D.
Chairman of the Board
Doctors Health System
10451 Mill Run Circle
10th Floor
Owings Mills, Maryland 21117
Dear Dr. Rifkin:
I wish to inform you that I am resigning my position as a Director of
Doctors Health System effective July 15, 1997.
Very truly yours,
/s/ Robert S. Zetzer
___________________________
Robert S. Zetzer
