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PROSPECTUS SUPPLEMENT NO. 2 FILED PURSUANT TO RULE 424(B)(3)
TO THE PROSPECTUS DATED JANUARY 24, 1997, REGISTRATION NO.: 333-1926
AS SUPPLEMENTED TO DATE
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT IS EXECUTED AS OF THIS
31ST DAY OF JANUARY, 1997, BY AND AMONG DOCTORS HEALTH SYSTEM, INC., A MARYLAND
CORPORATION ("DHS"), STEWART GOLD ("GOLD"), SCOTT RIFKIN ("RIFKIN"), ALAN KIMMEL
("KIMMEL") (Gold, Rifkin and Kimmel being collectively, the "MANAGEMENT
STOCKHOLDERS" or individually, a "MANAGEMENT STOCKHOLDER"), MEDICAL HOLDINGS
LIMITED PARTNERSHIP, a Maryland limited partnership (the "LP"), ST. JOSEPH
MEDICAL CENTER, INC., a Maryland non-profit, non-stock corporation (the "SERIES
A INVESTOR"), MED-LANTIC MANAGEMENT SERVICES, INC., a Maryland corporation (the
"SERIES B INVESTOR"), and GENESIS HEALTH VENTURES, INC., a Pennsylvania
corporation (the "SERIES C INVESTOR") (the Management Stockholders, the LP, the
Series A Investor, the Series B Investor and the Series C Investor each being a
"STOCKHOLDER" and collectively being the "STOCKHOLDERS"). As used in this
Agreement, the terms "Stockholder" and "Stockholders" shall include any
successors, assigns, transferees (whether by sale, gift, or other disposition),
heirs, and personal representatives of a Stockholder, whether permitted by the
terms hereof or otherwise.
WHEREAS, DHS has authorized capital stock consisting of Twenty Million,
Seven Hundred Thousand (20,700,000) shares of Class A Common Stock, with a par
value of one cent ($0.01) per share, of which Eight Hundred Thousand (800,000)
shares are issued and owned by the Management Stockholders in the proportions
set forth on Exhibit 1 attached hereto and made a part hereof (the "CLASS A
COMMON STOCK"); Ten Million (10,000,000) shares of Class B Common Stock, with a
par value of one cent ($0.01) per share, of which Two Million Two Hundred
Thousand (2,200,000) shares are issued and owned by the LP (the "CLASS B COMMON
STOCK"); Twenty-Nine Million, Fifty Thousand (29,050,000) shares of Class C
Common Stock, with a par value of one cent ($0.01) per share, of which no shares
are issued or outstanding (the "CLASS C COMMON STOCK"); One Million (1,000,000)
shares of Series A Convertible Preferred Stock with a par value of Five Dollars
($5.00) per share, One Million (1,000,000) of which are owned by the Series A
Investor (the "SERIES A PREFERRED STOCK"); Three Hundred Fifty-Five Thousand
Five Hundred Fifty-Six (355,556) shares of Series B Convertible Preferred Stock
with a par value of Eleven Dollars and Twenty-Five Cents ($11.25) per share,
Three Hundred Fifty-Five Thousand Five Hundred Fifty-Six (355,556) of which are
owned by the Series B Investor (the "SERIES B PREFERRED STOCK"), One Million
Five Hundred Thousand (1,500,000) shares of Series C Convertible Preferred Stock
with a par value of Fourteen Dollars ($14.00) per share, Five Hundred Seventy-
One Thousand Four Hundred Twenty-Eight (571,428) of which are owned by the
Series C Investor (the "SERIES C PREFERRED STOCK") (the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock are
hereinafter collectively referred to as the "CONVERTIBLE PREFERRED STOCK"); and
One Million (1,000,000) shares of preferred stock, with a par value of One Cent
($0.01) per share, of which no shares are issued and outstanding (the Class A
Common Stock, the Class B Common Stock, the Class C Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the preferred stock each being a "CLASS" and collectively being the "STOCK");
and
WHEREAS, the Stockholders own all of the issued and outstanding shares of
DHS and, with DHS, desire to assure continuity and to perpetuate harmony in
DHS's management, policies and operations; and
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WHEREAS, each Stockholder desires to facilitate the prompt liquidation of
the Management Stockholders' Stock in the event of the death of a Management
Stockholder, or, if necessary, during such Management Stockholder's lifetime;
and
WHEREAS, the Stockholders desire to maintain ownership and control of DHS
among themselves for the purposes of insuring continuity of management among
themselves; and
WHEREAS, the Stockholders and DHS deem it in their best interests to impose
certain restrictions and obligations on themselves in order to effectuate the
foregoing purposes; and
WHEREAS, the Stockholders and DHS entered into a Stockholders Agreement
dated September 4, 1996 and in connection with the issuance of a convertible
subordinated note convertible into additional shares of Series C Preferred Stock
to an affiliate of the Series C Investor, the Stockholders and DHS wish to enter
into this Amended and Restated Stockholders Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, and other good and valuable consideration the receipt and
sufficiency of which are acknowledged, the parties, intending to be legally
bound, covenant and agree as follows:
1. RECITALS; DEFINITIONS.
(a) RECITALS. The foregoing recitals are made a part of this
Agreement.
(b) CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean the earlier to occur of the following:
(i) a liquidating distribution to DHS' stockholders (or similar event); (ii) a
contribution, consolidation or merger where DHS is not the survivor; (iii) any
sale, exchange or other disposition of all, or substantially all, of DHS'
assets; or (iv) any public offering of DHS' securities at a company value of at
least $25,000,000 with proceeds to DHS of at least $15,000,000.
"DHS AMENDED AND RESTATED ARTICLES" shall mean the Articles of
Amendment and Restatement of DHS dated January 31, 1997 and filed with the
Maryland State Department of Assessments and Taxation on February 4, 1997.
(c) OTHER DEFINED TERMS. When used in this Agreement with its
initial letter capitalized, a word that is not defined in this Section 1 shall
have the meaning set forth elsewhere in this Agreement. When a word used in
this Agreement with its initial letter capitalized is not defined in this
Agreement, such word shall have the meaning set forth in the Definition Appendix
attached to this Agreement as APPENDIX A.
2. STOCK, WARRANTS AND OPTIONS COVERED; ADDITIONAL PARTIES. Except as
otherwise provided herein, all of the provisions of this Agreement shall apply
to, and the term "Stock" shall include, the Stock and all other shares of
capital stock and rights, including warrants and options, to acquire shares of
capital stock and all other equity securities now owned or which may be issued
hereafter to the Stockholders in consequence of any additional issuance,
purchase, exchange or reclassification of shares, corporate reorganization, or
any other form of recapitalization, consolidation, merger, share split, share
dividend, or which are acquired by Stockholders in any other manner. For
purposes of this Agreement, the term "Stock" shall include (i) beneficial
interests held by any beneficiary in any trust permitted to be a transferee
hereunder, (ii) that certain Stock Warrant No. 1 executed and delivered on
December 1, 1995 by DHS to the Series B Investor granting to the Series B
Investor the right to acquire Eighty Eight Thousand
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Eight Hundred Eighty Nine (88,889) shares of the Class A Common Stock of the
Company ("WARRANT NO. 1"), (iii) that certain Stock Warrant No. 5 executed and
delivered on January 31, 1997 by DHS to the Series C Investor granting to the
Series C Investor the right to acquire 250,000 shares of Class A Common Stock of
the Company ("WARRANT NO. 5"), (iv) the option of the Series C Investor to
purchase Two Hundred Fifty Thousand (250,000) shares of Series C Preferred Stock
from DHS pursuant to the Amended and Restated Option Agreement dated as of
January 31, 1997 between DHS and the Series C Investor (the "OPTION"), and (v)
the shares of Series C Preferred Stock issuable upon conversion of the
Convertible Subordinated 11% Note dated January 31, 1997 issued by DHS to
Genesis Holdings, Inc. (Warrant No. 1 and Warrant No. 5 are collectively
referred to as the "Warrant".) The parties hereto acknowledge and agree that
upon conversion of shares of Convertible Preferred Stock into shares of Class C
Common Stock all references to "Stock" and all references to "Convertible
Preferred Stock" herein shall include all such shares of Class C Common Stock,
and all references to "holders of Convertible Preferred Stock" shall include
"holders of Class C Common Stock." DHS acknowledges and agrees that it will not
issue any additional shares of its capital stock (or options) to any person or
entity which is not a party to this Agreement without requiring, as a condition
precedent to such issuance, that such person or entity execute a counterpart to
this Agreement (provided that non-executive employees of DHS to whom shares of
capital stock are issued pursuant to any employment agreement or any stock
option, stock purchase or similar plan of DHS shall not be required to execute
this Agreement so long as DHS, as a condition of such issuance, retains rights
to repurchase such shares of capital stock under substantive terms and
conditions consistent with those granted to DHS herein), and any member of DHS'
executive management team who is granted shares (or options) shall be deemed a
"Management Stockholder" for purposes hereof.
3. PURCHASE AND SALE. DHS agrees to purchase and redeem, and each
Stockholder agrees to sell and transfer, the Stock in the manner and upon the
terms provided in this Agreement. No purchase, sale, gift, endorsement,
assignment, transfer, pledge, encumbrance or other disposition, whether
voluntary, involuntary or by operation of law, including, without limitation,
any transfer pursuant to a divorce decree, of any shares of Stock of any
Stockholder shall be valid and binding except as provided in, and in accordance
with, the terms and conditions of this Agreement. Any purported transfer by any
Stockholder of the Stock or issuance of capital stock by the Company other than
in accordance with this Agreement shall be null and void, and DHS shall refuse
to recognize any such transfer and shall not reflect on its records any change
in record ownership of the Stock pursuant to any such transfer. Any transferee
of the Stock becoming the owner of the Stock in compliance with this Agreement
shall thereafter be deemed a Stockholder. The personal representative of a
deceased Stockholder shall automatically be subject to the terms and conditions
of this Agreement. Notwithstanding the foregoing, the holders of Convertible
Preferred Stock are entitled, pursuant to the terms of the DHS Amended and
Restated Articles, to exercise rights to convert shares of Convertible Preferred
Stock into shares of Class C Common Stock, and to require DHS to purchase shares
of Convertible Preferred Stock under certain circumstances, and no such
conversion or redemption shall give any person any rights under this Agreement.
4. DEATH, DISABILITY AND TERMINATION OF EMPLOYMENT OF A MANAGEMENT
STOCKHOLDER; INVOLUNTARY TRANSFERS.
(a) GENERAL.
(i) Upon the occurrence of the termination of employment of any
Management Stockholder (except with respect to each of Rifkin and Kimmel, the
termination of whose employment is governed by Section 4(f) hereof) with DHS for
any reason, other than an "Involuntary Transfer" (as defined below) including,
but not limited to, death or "disability" (as
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defined in Section 4(c) below), such Management Stockholder or other
Stockholder, as the case may be, shall sell, and DHS shall purchase, all of the
Stock then registered in such Stockholder's name at the price provided in
Section 4(e) or Section 6 hereof, as the case may be, and upon the terms
provided in Section 7 hereof.
(ii) Upon the occurrence of an "Involuntary Transfer" (as defined in
Section 4(d) below) of the Stock of any Stockholder (the "INVOLUNTARY TRANSFER
STOCKHOLDER"), DHS shall have the right, for a period of thirty (30) days from
the date of such occurrence, to purchase such Stock by providing written notice
to such effect to such Involuntary Transfer Stockholder and to any court which
has then exercised jurisdiction over such Involuntary Transfer Stockholder with
respect to its Stock, or to any assignee, trustee in bankruptcy or successor in
interest, as the case may be, and such Involuntary Transfer Stockholder shall be
obligated if DHS elects to exercise its right to purchase such Stock to sell all
but not less than all of the Stock then registered in such Involuntary Transfer
Stockholder's name at the price provided in Section 6 hereof and upon the terms
provided in Section 7 hereof. If DHS elects not to exercise its purchase
pursuant to this Section 4(a)(ii) within such thirty (30) day period, it shall
immediately provide written notice to that effect to all of the other
stockholders (the "NON-INVOLUNTARY TRANSFER STOCKHOLDERS"), who shall have the
option to purchase, and such Involuntary Transfer Stockholder shall be obligated
to sell to the extent such option is exercised, all of the shares of such Stock
at the price provided in Section 6 hereof and upon the terms provided in
Section 7 hereof. If more than one Non-Involuntary Transfer Stockholder desires
to so purchase, then they shall purchase in such proportions as they may agree.
In the absence of agreement, each of the Non-Involuntary Transfer Stockholders
desiring to purchase such stock shall be entitled to purchase up to that number
of shares of such Stock which is equal to the product of his percentage interest
of all of the shares of DHS Capital Stock then held by such Non-Involuntary
Transfer Stockholders multiplied by the number of shares of stock available for
purchase hereunder. The Non-Involuntary Transfer Stockholders shall have the
right to exercise their respective options for a period of thirty (30) days
following their receipt of DHS' notice that it has elected not to purchase such
Stock by providing notice in the manner required of DHS as otherwise set forth
in this Section 4(a)(ii).
(b) FURTHER ASSURANCES. Each Management Stockholder hereby agrees
that he and/or his personal representative, and each trustee of any permitted
trust hereunder, shall be bound to take any and all action necessary to enable
DHS to purchase his Stock pursuant to the provisions of this Section 4.
(c) DISABILITY. For purposes of this Section 4, "DISABILITY" with
respect to a Management Stockholder shall have the meaning set forth in said
Management Stockholder's DHS Employment Agreement or other employment agreement
with DHS, and if no such agreement exists, as determined by DHS' Board of
Directors in the exercise of its reasonable discretion.
(d) INVOLUNTARY TRANSFERS; PAYMENT. For purposes of this Section 4,
the occurrence of any of the following events shall constitute an "INVOLUNTARY
TRANSFER": (i) if any portion of a Stockholder's Stock is attached or taken in
execution, or (ii) if a Stockholder applies for the benefit of, or files a case
under, any provision of the federal bankruptcy law or any other law relating to
insolvency or relief of debtors, or (iii) if a case or proceeding is brought
against a Stockholder under any provision of the federal bankruptcy law or any
other law relating to insolvency or relief of debtors which is not dismissed
within sixty (60) days after the commencement thereof, or (iv) if a Stockholder
makes an assignment for the benefit of creditors, or (v) if any portion of a
Stockholder's Stock is made subject to a charging order, or (vi) if any portion
of a Management Stockholder's Stock or other Stock held by a natural person is
transferred pursuant to a divorce decree. For purposes of this Section 4(d),
the occurrence of any
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of the foregoing events described in Sections 4(d)(i) through (v) above, (A)
with respect to the General Partner of the LP, shall constitute an Involuntary
Transfer with respect to the LP of the Class B Common Stock, (B) with respect to
the Series A Investor, shall constitute an Involuntary Transfer of the Series A
Preferred Stock or the Class C Common Stock, as the case may be, (C) with
respect to the Series B Investor, shall constitute an Involuntary Transfer of
the Series B Preferred Stock, the Warrant or the Class C Common Stock, as the
case may be, and (D) with respect to the Series C Investor, shall constitute an
Involuntary Transfer of the Series C Preferred Stock, the Option or the Class C
Common Stock, as the case may be. If any Stockholder has actual knowledge of an
Involuntary Transfer by a Stockholder of his or its Stock, such Stockholder
shall give written notice to such effect to DHS, and the giving of such written
notice shall constitute the occurrence of such event for purpose of the time
period set forth in this Section 4(d).
(e) PAYMENT UPON TERMINATION OF EMPLOYMENT OF MANAGEMENT STOCKHOLDER
OTHER THAN RIFKIN OR KIMMEL. If the employment of a Management Stockholder
other than Rifkin or Kimmel with DHS is terminated, then the Management
Stockholders whose employment with DHS has not been terminated shall have the
option, for a period of sixty (60) days from the date of such termination, to
purchase (in such proportions as they shall agree upon or, if they cannot agree,
in proportion to their ownership of DHS Class A Common Stock other than the
stock of the terminated Management Stockholder) and, if such option is accepted,
such terminated Management Stockholder shall sell all of the shares of Stock
held by such terminated Management Stockholder (the "TERMINATED MANAGER'S
STOCK") on terms substantially identical to those set forth in Section 7 hereof
(other than subsections (c) and (d) thereof) and for a price determined in
accordance with Subsections (i) and (ii) of this Section 4(e). If all of the
Terminated Manager's Stock is not purchased by the other Management
Stockholders, DHS shall purchase, within ninety (90) days after the date of said
termination, and such terminated Management Stockholder shall sell, all of the
Terminated Manager's Stock upon the following terms and at the following prices:
(i) if such Management Stockholder's employment is terminated
(A) by DHS for any of the specific reasons enumerated in Section 4.3(a) of such
Management Stockholder's DHS Employment Agreement, or, if no such agreement is
then in effect, for "good cause" under applicable law, or (B) by the Management
Stockholder for any reason not constituting "constructive termination" as
defined in Section 4.4(b) of such Management Stockholder's DHS Employment
Agreement, then at a price equal to the lower of such Management Stockholder's
acquisition cost for his Stock or One Dollar ($1.00) per share, and upon the
terms set forth in Section 7 hereof; or
(ii) if such Management Stockholder's employment is terminated
(A) by death, or by "disability" (as defined herein), or (B) by expiration of
the term of such DHS Employment Agreement, or (C) by DHS without good cause as
contemplated by Section 4.3(b) of such Employment Agreement, or (D) by the
Management Stockholder for reasons constituting "constructive termination" under
such Agreement, then at the price set forth in Section 6 hereof, and upon the
terms set forth in Section 7 hereof.
If DHS is required, pursuant to the provisions of this Section 4(e),
to purchase the Terminated Manager's Stock at a price determined pursuant to
Subsection (ii) hereof, DHS shall, as a condition precedent to the closing of
such purchase, on or before the Closing Date for its acquisition of the
Terminated Manager's Stock, pay to (A) the Series A Investor all of the
dividends then accrued but unpaid on the Series A Preferred Stock plus all
accrued and unpaid interest thereon (whether by payment of cash or set off of
any accrued but unpaid interest under the Promissory Note issued by the Series A
Investor to DHS), or otherwise make provision for the payment of such dividends
that is acceptable to the Series A Investor, in its reasonable discretion, (B)
the Series B Investor all of the dividends then accrued but unpaid on the Series
B Preferred
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Stock plus all accrued and unpaid interest thereon or otherwise make provision
for the payment of such dividends that is acceptable to the Series B Investor,
in its reasonable discretion, and (C) the Series C Investor all of the dividends
then accrued but unpaid on the Series C Preferred Stock plus all accrued and
unpaid interest thereon or otherwise make provision for the payment of such
dividends that is acceptable to the Series C Investor, in its reasonable
discretion. Notwithstanding the foregoing, in the event DHS has paid the Series
C Investor as set forth in this paragraph prior to the consummation of a
Qualified Public Offering on or before August 30, 1998 as defined in the
Articles of Amendment and Restatement dated January 31, 1997, then on or before
the consummation of a Qualified Public Offering on or before August 30, 1998 (at
a price per share not less than the weighted average price paid or to be paid by
the Series C Investor for all shares of Series C Preferred Stock then
outstanding) the Series C Investor shall pay DHS an amount equal to the amount
of dividends and interest paid to the Series C Investor pursuant to this
Section.
(f) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OF RIFKIN AND
KIMMEL.
(i) TERMINATION OF EMPLOYMENT WITHOUT GOOD CAUSE. Except as set
forth in the proviso to this sentence, if the employment of Rifkin or Kimmel, as
the case may be, with DHS is terminated (A) by DHS for any of the specific
reasons enumerated in Section 4.3(a) of his respective DHS Employment Agreement
(or, if no such agreement is then in effect, for "good cause" under applicable
law), or (B) by Rifkin or Kimmel, as the case may be, for any reason not
constituting "constructive termination" as defined in Section 4.4(b) of such DHS
Employment Agreement, then Rifkin or Kimmel, as the case may be, shall sell, and
DHS shall purchase, all of the stock then registered in Rifkin's or Kimmel's
name, as the case may be, at a price equal to the lower of Rifkin's or Kimmel's,
as the case may be, acquisition cost for his Stock or One Dollar ($1.00) per
share, and upon the terms provided in Section 7 hereof; provided, however, that
the provisions of this paragraph 4(f)(i) shall not apply to any shares of
capital stock of DHS held by Rifkin or Kimmel on the date hereof (or received as
a distribution on or in respect of such shares after the date hereof as the
result of any recapitalization, stock split or similar event).
(ii) DEATH; DISABILITY. Upon each of (A) the death of Rifkin or
Kimmel, as the case may be, and the appointment and qualification of such
deceased stockholder's personal representative, and (B) the "Disability" of
Rifkin or Kimmel (as such term is defined in each such shareholder's current
employment agreement with DHS or, if there is none, as reasonably determined by
the Board of Directors of DHS), as the case may be, such personal
representative, Rifkin or Kimmel, as the case may be, may, for a period of sixty
(60) days from the date of such appointment and qualification or disability, as
the case may be, offer to the other Management Stockholders the option to
purchase (in such proportions as they shall agree upon or, if they cannot agree,
in proportion to their ownership of the DHS Class A Common Stock), all of the
shares of Stock held by such personal representative, Rifkin or Kimmel, as the
case may be, on terms substantially identical to those set forth in Section 7
hereof (other than Subsections (c) and (d) thereof) and at a price determined in
accordance with the terms of Section 6 hereof. If the option to purchase all of
the shares of Stock so offered is not exercised or accepted within such sixty
(60) day period, then such personal representative, Rifkin or Kimmel, as the
case may be, shall be entitled to sell, by providing written notice to DHS, and
DHS shall be required to purchase upon receipt of such notice, all or any
portion of such shares of Stock held by Rifkin or Kimmel, as the case may be, as
such number of shares is set forth in such written notice, at the price and upon
the terms provided in Sections 6 and 7 hereof.
(iii) TERMINATION OF EMPLOYMENT UNDER OTHER CIRCUMSTANCES.
If Rifkin's or Kimmel's employment is terminated (A) by expiration of the term
of his respective DHS Employment Agreement, or (B) by DHS without good cause as
contemplated by Section 4.3(b) of
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such Employment Agreements, or (C) by Rifkin or Kimmel, as the case may be, for
reasons constituting "constructive termination" under such Agreements, then DHS
shall purchase, within ninety (90) days after the date of such termination, and
Rifkin and Kimmel shall sell, as the case may be, those shares (and only those
shares) of capital stock of DHS acquired by Rifkin or Kimmel, as the case may
be, after the date hereof (other than as a distribution on or in respect of
shares held on the date hereof through a recapitalization, stock split, or
similar event) at the price set forth in Section 6 hereof, and upon the terms
set forth in Section 7 hereof.
If DHS is required, pursuant to the provisions of this Section 4(f), to purchase
the Terminated Manager's Stock at a price determined pursuant to Subsection (ii)
hereof, DHS shall, as a condition precedent to the closing of such purchase, on
or before the Closing Date for its acquisition of the Terminated Manager's
Stock, pay to (A) the Series A Investor all of the dividends then accrued but
unpaid on the Series A Preferred Stock plus all accrued and unpaid interest
thereon (whether by payment of cash or set off of any accrued but unpaid
interest under the Promissory Note issued by the Series A Investor to DHS), or
otherwise make provision for the payment of such dividends that is acceptable to
the Series A Investor, in its reasonable discretion, (B) the Series B Investor
all of the dividends then accrued but unpaid on the Series B Preferred Stock
plus all accrued and unpaid interest thereon or otherwise make provision for the
payment of such dividends that is acceptable to the Series B Investor, in its
reasonable discretion, and (C) the Series C Investor all of the dividends then
accrued but unpaid on the Series C Preferred Stock plus all accrued and unpaid
interest thereon or otherwise make provision for the payment of such dividends
that is acceptable to the Series C Investor, in its reasonable discretion.
Notwithstanding the foregoing, in the event DHS has paid the Series C Investor
as set forth in this paragraph prior to the consummation of a Qualified Public
Offering on or before August 30, 1998 as defined in the Articles of Amendment
and Restatement dated January 31, 1997, then on or before the consummation of a
Qualified Public Offering on or before August 30, 1998 (at a price per share not
less than the weighted average price paid or to be paid by the Series C Investor
for all shares of Series C Preferred Stock then outstanding) the Series C
Investor shall pay DHS an amount equal to the amount of dividends and interest
paid to the Series C Investor pursuant to this Section.
(g) PRICE ADJUSTMENTS FOLLOWING A CHANGE IN CONTROL OF DHS. If the
employment of a Management Stockholder other than Rifkin or Kimmel with DHS is
terminated pursuant to the provisions in Section 4(e)(ii)(C) or (D) above, and
there occurs a Change in Control of DHS within the first twenty-four months
following the date of such termination, DHS agrees to pay or cause to be paid to
such terminated Management Stockholder (or to his heirs, legatees and/or
guardians), in addition to the purchase price for such terminated Management
Stockholder's Stock as determined pursuant to Section 7 hereof, the value of
such terminated Management Stockholder's fair, allocative, share of any
consideration that would have been payable to such terminated Management
Stockholder (less any such consideration actually received by such Management
Stockholder as a result of a sale of his Stock, whether to another Management
Stockholder, DHS or another person) or to DHS upon, and as a result of, such a
Change in Control of DHS within such twenty-four month period. Such payment
shall be made by DHS when and as DHS or the other DHS Stockholders receive
consideration as a result of such a Change in Control, and shall be paid by DHS
based upon such terminated Management Stockholder's pro-rata equity interest in
DHS at the time of termination. Any payment by DHS pursuant to this Section
4(f) may, at DHS' option, be made by delivery of (i) cash, (ii) a promissory
note with a term of not more than ten years and interest at a rate calculated
pursuant to Section 1274(d) of the Internal Revenue Code of 1986, or (iii) an
appropriate in-kind distribution of any consideration received as a result of
such Change in Control. The parties hereto acknowledge and agree that each
Partner of the LP who has entered into a Professional Service Employment
Agreement with the LLC shall be entitled to receive, and pursuant to Section
7.3.3(i) of the Limited Partnership Agreement has received, the benefit of the
substantive provisions set forth in this
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Section 4(g), upon the sale of his Limited Partner Interest in the LP due to the
termination of his employment with BMG resulting from a termination by the LLC
without good cause or a "constructive termination," as defined therein.
5. VOLUNTARY TRANSFERS OF STOCK.
(a) STOCK RESTRICTED. Subject to the rights of the holders of
Convertible Preferred Stock set forth in the DHS Amended and Restated Articles,
each Stockholder agrees that, during his lifetime or its corporate existence or
otherwise, he or it will not sell, transfer, exchange, assign or otherwise
dispose of (by sale, gift, or otherwise), or mortgage, hypothecate, lien,
pledge, encumber or otherwise cause a security interest to be created in any of
his or its Stock, except upon satisfaction of the conditions set forth in this
Section 5 and Section 4 above. Notwithstanding the foregoing, (i) each
Management Stockholder shall be entitled to transfer all or any portion of his
shares of Stock to a trust solely for the benefit of himself, his spouse and/or
his lineal descendants PROVIDED THAT, as a condition of said transfer, (A) the
agreement governing said trust requires transfers of any beneficial interests
therein (other than among such permitted persons) to be treated as transfers of
Stock hereunder and subject to the terms hereof, and (B) all trustees of said
trust execute and deliver to the parties hereto a counterpart of this Agreement
and otherwise agree to be bound by all of the terms and provisions hereof with
respect to the Stock, and (ii) each holder of Convertible Preferred Stock and of
Class B Common Stock may transfer its Convertible Preferred Stock or Class B
Common Stock, as the case may be, to any entity all of the ownership interests
in which are owned by such holder, provided that such transferee executes and
delivers to the parties hereto a counterpart of this Agreement and otherwise
agrees to be bound by all of the terms and provisions hereof.
(b) DELEGATION RIGHTS. If DHS is unable to exercise any of its
purchase rights hereunder, it shall be entitled to delegate such rights to such
of the Stockholders who desire to purchase stock upon the occurrence of the
events set forth in Sections 4(a)(i) or (ii) hereof, provided such stockholders,
as a condition of such obligation, shall be entitled to purchase such stock pro
rata as consolidated pursuant to Section 4(a)(ii) hereof.
(c) VOLUNTARY TRANSFERS BY MANAGEMENT STOCKHOLDERS.
(i) OPTION OF OTHER MANAGEMENT STOCKHOLDERS. A Management
Stockholder shall have the right to receive a bona fide offer to purchase (which
he is willing to accept) (a "MANAGEMENT OFFER") from any independent third
person capable of consummating such a sale of all, but not less than all, of his
Stock (the "MANAGEMENT OFFERED STOCK"). Before accepting a Management Offer,
such Management Stockholder shall first offer in writing (the "MANAGEMENT
STOCKHOLDER'S OFFER") to sell the Management Offered Stock to the other
Management Stockholders (the "OTHER MANAGEMENT STOCKHOLDERS") at the price and
on the terms on which such selling Management Stockholder proposes to transfer
the Management Offered Stock to the proposed third party transferee. The
Management Stockholder's Offer shall set forth (A) the number of shares of the
Management Offered Stock, (B) the name and address of the proposed transferee,
(C) the amount of consideration to be received by the selling Stockholder, and
(D) the method of proposed payment. A copy of the Management Stockholder's
Offer shall simultaneously also be sent to all of the other Stockholders and to
DHS.
The Other Management Stockholders shall have the option to acquire all
or any of the shares of Management Offered Stock at the price and upon the terms
provided in the Management Stockholder's Offer. If more than one Other
Management Stockholder desires to purchase the Management Offered Stock, such
Management Offered Stock shall be purchased by them in such proportions as they
may agree. In the absence of agreement, each of the Other Management
Stockholders desiring to purchase the Management Offered Stock shall be entitled
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to purchase up to that number of shares of Management Offered Stock which is
equal to the product of such number of shares of Management Offered Stock
divided by the number of other Management Stockholders desiring to purchase such
shares of Stock. The Other Management Stockholders shall have the right to
exercise their respective options to purchase the Management Offered Stock, for
a period of thirty (30) days following their receipt of the Management
Stockholder's Offer, by notifying the selling Management Stockholder in writing
of their respective intentions to purchase at Closing (as defined in Section
7(e) hereof) all or any shares of the Management Offered Stock.
(ii) OPTION OF THE HOLDERS OF CLASS B COMMON STOCK. If the Other
Management Stockholders do not accept the Management Stockholder's Offer to
purchase all of the shares of Management Offered Stock within the period of
thirty (30) days provided in Section 5(c)(i), then the selling Management
Stockholder, immediately thereafter, shall be deemed to have made an offer (the
"MANAGEMENT STOCKHOLDER'S SECOND OFFER") to sell all of the remaining shares of
the Management Offered Stock (the "REMAINING MANAGEMENT OFFERED STOCK") to the
holders of Class B Common Stock at the price and upon the terms provided in the
Management Stockholder's Offer. The holders of the Class B Common Stock shall
have the option, for a period of fifteen (15) days after the earlier to occur of
(A) expiration of the thirty (30) day period provided in Section 5(c)(i), or (B)
notification by all of the Other Management Stockholders to the holders of Class
B Common Stock to the effect that the Other Management Stockholders, in the
aggregate, have elected to purchase less than all of the shares of Management
Offered Stock as provided in Section 5(c)(i), to purchase all of the Remaining
Management Offered Stock, upon written notification to the selling Management
Stockholder, at the price and upon the terms provided in this Section 5(c). If
more than one holder of Class B Common Stock desires to purchase the Remaining
Management Offered Stock, such Remaining Management Offered Stock shall be
purchased by them in such proportions as they may agree. In the absence of
agreement, each of the holders of Class B Common Stock desiring to purchase the
Remaining Management Offered Stock shall be entitled to purchase up to that
number of shares of Remaining Management Offered Stock which is equal to the
product of his percentage interest of all of the shares of Class B Common Stock
held by all such holders of Class B Common Stock times the number of shares of
Remaining Management Offered Stock available for purchase hereunder. The
holders of Class B Common Stock shall have the right to exercise their
respective options to purchase the Remaining Management Offered Stock by
notifying the selling Management Stockholder in writing of their respective
intentions to purchase at Closing (as defined in Section 7(e) hereof) all or any
shares of the Remaining Management Offered Stock.
(iii) OPTION OF THE HOLDERS OF CONVERTIBLE PREFERRED STOCK.
If the holders of Class B Common Stock do not accept the Management
Stockholder's Second Offer to purchase all of the shares of Remaining Management
Offered Stock within the period of fifteen (15) days provided in Section
5(c)(ii), then the selling Management Stockholder, immediately thereafter, shall
be deemed to have made an offer (the "MANAGEMENT STOCKHOLDER'S THIRD OFFER") to
sell all of the remaining shares of the Remaining Management Offered Stock (the
"AVAILABLE MANAGEMENT OFFERED STOCK") to the holders of Convertible Preferred
Stock at the price and upon the terms provided in the Management Stockholder's
Offer. The holders of Convertible Preferred Stock shall have the option, for a
period of fifteen (15) days after the earlier to occur of (A) expiration of the
fifteen (15) day period provided in Section 5(c)(ii), or (B) notification by all
of the holders of Class B Common Stock to the holders of Convertible Preferred
Stock to the effect that the holders of Class B Common Stock have elected to
purchase less than all of the shares of Remaining Management Offered Stock as
provided in Section 5(c)(ii), to purchase all of the Available Management
Offered Stock, upon written notification to the selling Management Stockholder,
at the price and upon the terms provided in this Section 5(c). If more than one
holder of Convertible Preferred Stock desires to purchase the Available
Management Offered Stock, such Available Management Offered Stock shall be
purchased by them in such
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proportions as they may agree. In the absence of agreement, each of the holders
of Convertible Preferred Stock desiring to purchase the Available Management
Offered Stock shall be entitled to purchase up to that number of shares of
Available Management Offered Stock which is equal to the product of his
percentage interest of all of the shares of Convertible Preferred Stock held by
all such holders of Convertible Preferred Stock times the number of shares of
Available Management Offered Stock available for purchase hereunder. The
holders of Convertible Preferred Stock shall have the right to exercise their
respective options to purchase the Available Management Offered Stock by
notifying the selling Management Stockholder in writing of their respective
intentions to purchase at Closing (as defined in Section 7(e) hereof) all or any
shares of the Available Management Offered Stock.
(iv) OPTION OF DHS. If the holders of Convertible Preferred
Stock do not accept the Management Stockholder's Third Offer to purchase all of
the shares of Available Management Offered Stock within the period of fifteen
(15) days provided above in Section 5(c)(iii), then the selling Management
Stockholder, immediately thereafter, shall be deemed to have made an offer (the
"FINAL MANAGEMENT STOCKHOLDER'S OFFER") to sell all of the remaining shares of
the Available Management Offered Stock (the "FINAL MANAGEMENT OFFERED STOCK") to
DHS at the price and upon the terms provided in the Management Stockholder's
Offer. DHS shall have the option, for a period of fifteen (15) days after the
earlier to occur of (i) expiration of the fifteen (15) day period provided in
Section 5(c)(iii), or (ii) notification by all of the holders of Convertible
Preferred Stock to DHS to the effect that the holders of Convertible Preferred
Stock have elected to purchase less than all of the shares of Available
Management Offered Stock as provided in Section 5(c)(iii), to purchase all or
some of the Final Management Offered Stock, upon written notification to the
selling Management Stockholder, at the price and upon the terms provided in the
Management Stockholder's Offer.
(v) TRANSFERS TO THIRD PARTIES. If (A) a Management Stockholder
elects to transfer all of his shares of Management Stock; (B) said Management
Stockholder strictly complies with the provisions of Sections 5(c)(i) through
5(c)(iv) above; (C) the Remaining Management Stockholders, the holders of Class
B Common Stock, the holders of Convertible Preferred Stock and DHS elect to
purchase, in the aggregate, less than all of the shares of Management Offered
Stock; and (D) the Management Stockholder who desires to transfer the Management
Offered Stock complies with the terms of this Section 5(c)(v), then all of the
Management Offered Stock remaining unsold pursuant to the rights of refusal
contained in this Section 5(c) may be sold by the selling Management Stockholder
to the third party named in the Management Stockholder's Offer within a period
of thirty (30) days after the expiration of the fifteen (15) day period provided
in Section 5(c)(iv). Such remaining Management Offered Stock may be transferred
to the third party named in the Management Stockholder's Offer; provided that
(X) such shares are sold at the price and on the terms set forth in the
Management Stockholder's Offer; (Y) the shares so transferred shall remain
subject to all of the provisions of this Agreement; and (Z) the third party
transferee shall execute an instrument acceptable to counsel for DHS, pursuant
to which such third party becomes a party to this Agreement and agrees to be
bound by all of the provisions and terms or conditions hereof.
(d) VOLUNTARY TRANSFERS BY THE HOLDERS OF CLASS B COMMON STOCK.
(i) OPTION OF OTHER STOCKHOLDERS. Each holder of Class B Common
Stock shall have the right to receive a bona fide offer to purchase (which it is
willing to accept) (a "CLASS B COMMON OFFER") from any independent third person
capable of consummating such a sale of all, but not less than all, of its Class
B Common Stock (the "CLASS B COMMON OFFERED STOCK"). Before accepting a Class B
Common Offer, the holder of Class B Common Stock shall first offer in writing
(the "CLASS B COMMON STOCKHOLDER'S OFFER") to sell the Class B Common Offered
Stock to the other Stockholders (the "OTHER STOCKHOLDERS") at the price
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and on the terms on which such selling Class B Common Stockholder proposes to
transfer the Class B Common Offered Stock to the proposed third party
transferee. The Class B Common Stockholder's Offer shall set forth (A) the
number of shares of the Class B Common Offered Stock, (B) the name and address
of the proposed transferee, (C) the amount of consideration to be received by
the holder of Class B Common Stock, and (D) the method of proposed payment. A
copy of the Class B Common Stockholder's Offer shall simultaneously also be sent
to DHS.
The Other Stockholders shall have the option to acquire all or any of
the shares of Class B Common Offered Stock at the price and upon the terms
provided in the Class B Common Stockholder's Offer. If more than one Other
Stockholder desires to purchase the Class B Common Offered Stock, such Class B
Common Offered Stock shall be purchased by them in such proportions as they may
agree. In the absence of agreement, each of the Other Stockholders desiring to
purchase the Class B Common Offered Stock shall be entitled to purchase up to
that number of shares of Class B Common Offered Stock which is equal to the
product of his percentage interest of all of the shares of DHS Capital Stock
then held by all such Other Stockholders times the number of shares of Class B
Common Offered Stock available for purchase hereunder. The Other Stockholders
shall have the right to exercise their respective options to purchase the Class
B Common Offered Stock, for a period of thirty (30) days following their receipt
of the Class B Common Stockholder's Offer, by notifying such holder of Class B
Common Stock in writing of their respective intentions to purchase at Closing
(as defined in Section 7(e) hereof) all or any shares of the Class B Common
Offered Stock.
(ii) OPTION OF DHS. If the Other Stockholders do not accept the
Class B Common Stockholder's Offer to purchase all of the shares of Class B
Common Offered Stock within the period of thirty (30) days provided above in
Section 5(d)(i), then the holders of Class B Common Stock, immediately
thereafter, shall be deemed to have made an offer (the "FINAL CLASS B COMMON
STOCK OFFER") to sell all of the remaining shares of the Class B Common Offered
Stock (the "REMAINING CLASS B COMMON OFFERED STOCK") to DHS at the price and
upon the terms provided in the Class B Common Stockholder's Offer. DHS shall
have the option, for a period of fifteen (15) days after the earlier to occur of
(i) expiration of the thirty (30) day period provided in Section 5(d)(i), or
(ii) notification by all of the Other Stockholders to DHS to the effect that the
Other Stockholders have elected to purchase less than all of the shares of Class
B Common Offered Stock as provided in Section 5(d)(i), to purchase all of the
Remaining Class B Common Offered Stock, upon written notification to such holder
of Class B Common Stock, at the price and upon the terms provided in the Class B
Common Stockholder's Offer.
(iii) TRANSFERS TO THIRD PARTIES. If (A) the holder of Class
B Common Stock elects to transfer all of its shares of Class B Common Stock; (B)
the holder of Class B Common Stock strictly complies with the provisions of
Sections 5(d)(ii) and (iii); (C) the Other Stockholders and DHS elect to
purchase, in the aggregate, less than all of the shares of Class B Common
Offered Stock; and (D) the holder of Class B Common Stock complies with the
terms of this Section 5(c)(iii), then all of the Class B Common Offered Stock
may be sold by the holder of Class B Common Stock to the third party named in
the Class B Common Stockholder's Offer within a period of fifteen (15) days
after the expiration of the fifteen (15) day period provided in Section
5(d)(ii). Such Class B Common Offered Stock may be transferred to the third
party named in the Class B Common Stockholder's Offer; provided that (X) such
shares are sold at the price and on the terms set forth in the Class B Common
Stockholder's Offer; (Y) the shares so transferred shall remain subject to all
of the provisions of this Agreement; and (Z) the third party transferee shall
execute an instrument acceptable to counsel for DHS, pursuant to which such
third party becomes a party to this Agreement and agrees to be bound by all of
the provisions and terms or conditions hereof.
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(e) VOLUNTARY TRANSFERS BY THE HOLDERS OF CONVERTIBLE PREFERRED
STOCK. Notwithstanding any other provision of this Agreement or any other
agreement to which DHS and either of the Series A Investor, the Series B
Investor or the Series C Investor are parties, no shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be,
may be voluntarily transferred pursuant to this Section 5(e) or otherwise if, at
the time of such attempt to transfer, (1) the Series A Investor, the Series B
Investor or the Series C Investor, respectively, has not made full payment to
DHS in cash for all shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock, as the case may be, held by the Series A Investor,
the Series B Investor or the Series C Investor, respectively, including all
amounts of principal and interest under any note given in partial consideration
for such shares, or (2) any holder of Convertible Preferred Stock proposing to
sell such stock pursuant to this Section 5(e) holds, at the time of such attempt
at transfer, rights to purchase additional shares of Convertible Preferred
Stock.
(i) OPTION OF DHS. Except as otherwise herein provided, each
holder of Convertible Preferred Stock shall have the right to receive a bona
fide offer to purchase (which it is willing to accept) (a "CONVERTIBLE PREFERRED
STOCK OFFER"), from any independent third person capable of consummating such a
sale, any or all of its shares of Convertible Preferred Stock (the "PREFERRED
OFFERED STOCK"). Before accepting a Convertible Preferred Stock Offer, the
holder of Convertible Preferred Stock shall first offer in writing (the
"CONVERTIBLE PREFERRED STOCKHOLDER'S OFFER") to sell the Preferred Offered Stock
to DHS at the price and on the terms on which the holder of Convertible
Preferred Stock proposes to transfer the Preferred Offered Stock to the proposed
third party transferee. The Convertible Preferred Stockholder's Offer shall set
forth (A) the number of shares of the Preferred Offered Stock, (B) the name and
address of the proposed transferee, (C) the amount of consideration to be
received by the holder of Convertible Preferred Stock, and (D) the method of
proposed payment.
DHS shall have the option to acquire all, but not less than all, of
the shares of Preferred Offered Stock at the price and upon the terms provided
in the Convertible Preferred Stockholder's Offer. DHS shall have the right to
exercise its option to purchase the Preferred Offered Stock, for a period of
thirty (30) days following its receipt of the Convertible Preferred
Stockholder's Offer, by notifying all of the holders of Convertible Preferred
Stock in writing of its intention to purchase at Closing (as defined in Section
7(e) hereof) all or any shares of the Preferred Offered Stock.
(ii) OPTION OF THE HOLDERS OF CONVERTIBLE PREFERRED STOCK. If
DHS does not accept the Convertible Preferred Stockholder's Offer to purchase
all of the Shares of Preferred Offered Stock within the period of thirty (30)
days provided in Section 5(e)(i), then the selling holder of Convertible
Preferred Stock, immediately thereafter, shall be deemed to have made an offer
(the "SECOND CONVERTIBLE PREFERRED STOCKHOLDER'S OFFER") to sell all of the
remaining shares of the Preferred Offered Stock (the "REMAINING PREFERRED
OFFERED STOCK") to the other holders of Convertible Preferred Stock at the price
and upon the terms provided in the Convertible Preferred Stockholder's Offer.
The other holders of Convertible Preferred Stock shall have the option, for a
period of fifteen (15) days after the earlier to occur of (A) expiration of the
thirty (30) day period provided in Section 5(e)(ii), or (B) notification by DHS
to the holders of Convertible Preferred Stock to the effect that DHS has elected
to purchase less than all of the shares of Remaining Preferred Offered Stock as
provided in Section 5(e)(ii), to purchase all of the Remaining Preferred Offered
Stock upon written notification to the selling holder of Remaining Preferred
Offered Stock, at the price and upon the terms provided in the Convertible
Preferred Stockholder's Offer. If more than one holder of Convertible Preferred
Stock desires to purchase the Remaining Preferred Offered Stock, such Remaining
Preferred Offered Stock shall be purchased by them in such proportions as they
may agree. In the absence of agreement, each of the holders of Convertible
Preferred Stock desiring to purchase the Remaining Preferred Offered
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Stock shall be entitled to purchase up to that number of shares of Remaining
Preferred Offered Stock which is equal to the product of his percentage interest
of all of the shares of Convertible Preferred Stock held by all such holders of
Convertible Preferred Stock times the number of shares of Remaining Preferred
Offered Stock available for purchase hereunder. The holders of Convertible
Preferred Stock shall have the right to exercise their respective options to
purchase the Remaining Preferred Offered Stock by notifying the selling holder
of Convertible Preferred Stock in writing of their respective intentions to
purchase at Closing (as defined in Section 7(e) hereof) all or any shares of the
Remaining Preferred Offered Stock.
(iii) TRANSFERS TO THIRD PARTIES. If (A) the holder of
Convertible Preferred Stock elects to transfer all of its shares of Convertible
Preferred Stock; (B) the holder of Convertible Preferred Stock strictly complies
with the provisions of Sections 5(e)(i) and (ii); (C) DHS does not exercise its
right to purchase all, but not less than all, of the shares of Preferred Offered
Stock and the holders of Convertible Preferred Stock elect to purchase, in the
aggregate, less than all of the shares of the Remaining Preferred Offered Stock;
and (D) the holder of Convertible Preferred Stock complies with the terms of
this Section 5(e)(iii), then all, but not less than all, of the shares of the
Remaining Preferred Offered Stock may be sold by the holder of Convertible
Preferred Stock to the third party named in the Convertible Preferred
Stockholder's Offer within a period of thirty (30) days after the expiration of
the fifteen (15) day period provided in Section 5(e)(ii). Such Remaining
Preferred Offered Stock may be transferred to the third party named in the
Convertible Preferred Stockholder's Offer; provided that (X) such shares are
sold at the price and on the terms set forth in the Convertible Preferred
Stockholder's Offer; (Y) the shares so transferred shall remain subject to all
of the provisions of this Agreement; and (Z) the third party transferee shall
execute an instrument reasonably acceptable to counsel for DHS, pursuant to
which such third party becomes a party to this Agreement and agrees to be bound
by all of the provisions and terms or conditions hereof.
(f) The closing for any purchase by a Stockholder or DHS of shares
proposed to be voluntarily transferred by a Stockholder pursuant to a BONA FIDE
third party offer under this Section 5 shall be held at 10:00 a.m. at the
principal offices of DHS in Owings Mills, Maryland, on the date set forth for
the closing in the BONA FIDE offer. In the event that no such date is set forth
in the BONA FIDE offer, the closing shall be held at the principal offices of
DHS in Owings Mills, Maryland, at 10:00 a.m., not later than the 30th day after
the last to expire of the time periods for giving of notice provided for under
this Section 5 and applicable to such proposed voluntary transfer.
6. PURCHASE PRICE OF STOCK FOR PURPOSES OF INVOLUNTARY TRANSFERS AND
SECTIONS 4(E)(II) AND 4(F)(II).
(a) AGREEMENT OF THE PARTIES.. With respect to purchases governed by
the provisions of Section 4(d), Section 4(e)(ii) and Section 4(f)(ii) hereof, if
the purchaser of Stock hereunder, on the one hand, and the transferring
Stockholder, on the other hand, agree in writing as to the purchase price for
the Stock to be sold pursuant to Section 4(d), 4(e)(ii) or Section 4(f)(ii)
hereof, as the case may be, such agreed price shall be the purchase price for
such Stock. If no agreement on the purchase price of such Stock can be reached
within thirty (30) days from the date of the occurrence of the applicable event
under the provisions of Section 4(d), or 4(e)(ii) or, with respect to the
occurrence of an event governed by Section 4(f)(ii), within thirty (30) days
after the receipt of the notice required to be determined thereunder, as the
case may be (provided that, with respect to the death of a Management
Stockholder other than Rifkin or Kimmel, such thirty (30) day period shall
commence upon the appointment and qualification of such deceased Management
Stockholder's personal representative), then the purchase price of said Stock
shall be determined pursuant to Section 6(b) hereof.
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(b) APPRAISAL.
(i) If the purchase price of Stock to be sold pursuant to
Section 4(d), 4(e)(ii) or 4(f)(ii) is not agreed upon as provided in Section
6(a) within the time period stated therein, then within fourteen (14) days
thereafter an appraiser or appraisers shall be jointly selected by the
transferring Stockholder, on the one hand, and DHS on the other hand, and such
jointly selected appraiser or appraisers shall determine the "fair market value
of the Stock," which determination shall be binding and conclusive upon all
parties. For purposes of this Section 6(b), the "FAIR MARKET VALUE OF THE
STOCK" shall be an amount equal to the "Fair Market Value Per Share" of the
Class being sold and purchased hereunder, multiplied by the number of shares of
Stock of said Class of the transferring Stockholder which are being sold and
purchased hereunder. "FAIR MARKET VALUE PER SHARE" shall be an amount as of the
Disposition Date as determined by appraisal using such methods as the appraisers
appointed hereunder determine, in the exercise of their sole discretion, is
appropriate pursuant to this Section 6(b), taking into account any liquidation
preferences or other rights attendant to such class, any minority stockholder
discount, majority stockholder premium or marketability or other discount or
premium, as the case may be. "DISPOSITION DATE" shall be the last day of the
calendar month immediately preceding the event giving rise to the purchase of
the Stock under Section 4 hereof.
(ii) If the transferring Stockholder, on the one hand, and DHS on
the other hand, do not agree upon the selection of an appraiser or appraisers,
as provided in Section 6(b)(i), within the period therein stated, then, within
seven (7) days after the expiration of the fourteen (14) day period provided for
in Section 6(b)(i) hereof, the transferring Stockholder shall appoint an
appraiser, and DHS shall appoint a second appraiser. The two (2) appraisers so
appointed shall appoint a third appraiser within seven (7) days after both shall
have been appointed. If either the transferring Stockholder or DHS shall fail
to so appoint an appraiser, the appraiser duly appointed by the other shall
serve as the sole appraiser and such appraiser shall determine the fair market
value of the Stock and such determination shall be binding, final and conclusive
on all parties. The said appraisers so appointed (or the sole appraiser if any
party fails to select an appraiser as provided above), shall, within thirty (30)
days after the last appointment thereof determine the fair market value of the
Stock and the determination of such appraiser shall be determinative of the fair
market value of the Stock for the purposes of this Agreement and shall be
binding, final and conclusive on all parties. If the appraisers cannot agree on
the fair market value of the Stock, within the time allotted, then such fair
market value shall be the median of the two appraisals closest in value to each
other.
(iii) All expenses incurred in the appraisal process shall be
borne and paid equally by the transferring Stockholder, and DHS.
7. PAYMENT OF PURCHASE PRICE. The payment of any purchase price for
Stock transferred pursuant to Section 4 hereof may be made on such terms as are
agreed upon by the parties but, absent such agreement shall be made as follows:
(a) CASH PORTION. Subject to the terms of Section 7(d) hereof and,
with respect to any Involuntary Transfer, subject to such other terms and
conditions as may be required by any court which has then exercised jurisdiction
over any Involuntary Transfer Stockholder with respect to its Stock, or to any
assignee, trustee in bankruptcy or successor in interest, as the case may be,
(i) in the event of any transfer pursuant to Section 4 (other than as a result
of the death of a Management Stockholder), (A) where DHS is the purchaser, ten
percent (10%) of the total purchase price of the Stock shall be paid in cash by
DHS on the Closing Date, as defined in Section 7(e) hereof, and (B) where any
party other than DHS is the purchaser, the entire amount of the purchase price
of the Stock shall be paid by check by such purchaser(s) on
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the Closing Date, and (ii) in the event of any transfer as a result of the death
of a Management Stockholder, DHS shall pay by check on the Closing Date the
greater of (A) the proceeds of any life insurance policy or policies (but not in
excess of the purchase price to be paid by DHS hereunder) owned by DHS on which
the deceased Management Stockholder is the named insured and DHS is the
applicant, owner and beneficiary, and which policy or policies were purchased
for the purpose of using the proceeds thereof to purchase the shares of Stock of
the deceased Management Stockholder upon his death (rather than to reimburse DHS
for the loss of the services to be provided to DHS by the deceased Management
Stockholder), or (B) ten percent (10%) of the total purchase price of the Stock
held by such deceased Management Stockholder. Notwithstanding the foregoing, if
DHS is a purchaser hereunder but is unable, under applicable law, to make all or
any portion of any payment otherwise due hereunder on the Closing Date, DHS
shall pay such portion, if any, as applicable law permits, and the balance of
such payment shall be payable pursuant to the provisions of Section 7(b) hereof.
(b) PROMISSORY NOTE. The balance of the purchase price shall be
represented by a promissory note of DHS, payable in seven (7) equal annual
installments of principal and interest, the first of which shall be due and
payable on the first anniversary of delivery of such note. The note shall be
substantially in the form of the promissory note attached hereto and made a part
hereof as EXHIBIT A, and contain terms and conditions substantially similar to
the terms and conditions contained therein. Interest shall accrue on, and be
payable with, the unpaid balance of said note from the Closing Date at a rate
equal to the applicable federal rate for long-term debt instruments then
existing on the date of issuance under Code Section 1274(d)(1). As security for
payment of the amounts due under such promissory note, DHS shall pledge to the
selling Stockholder such shares of Stock being acquired until such time as all
payments due thereunder have been paid in full, provided that such selling
Stockholder shall not be entitled to exercise any voting or other rights with
respect to such shares of Stock so long as DHS is not in default of any payment
due under such note.
(c) DEBT DUE FROM STOCKHOLDER. Any debt due by the transferring
Stockholder to DHS shall be payable according to its terms, as shall any debt
due by DHS to the transferring Stockholder; except, however, that, regardless of
the terms of any such debt due by the Stockholder to DHS, any cash payment due
under Section 7(a) hereof, as well as any insurance proceeds payable under
Section 8 hereof, with respect to the purchase of the transferring Stockholder's
Stock shall, instead of being paid to the transferring Stockholder, be first
applied to the discharge of any such indebtedness, until all such indebtedness
is fully discharged. The provisions of this Section 7(c) shall also apply to
any purchases of Stock by DHS pursuant to Section 5 hereof.
(d) INVOLUNTARY TRANSFERS. DHS shall settle with an assignee,
trustee in bankruptcy, attaching court or officer or successor in interest
holding Stock received in an Involuntary Transfer by taking any or all such
Stock in execution and paying to them the purchase price for each share of such
Stock calculated pursuant to Section 6, but not exceeding the Stockholder's
indebtedness and proper items of expense. The balance of the value of such
Stock, if any, shall be distributable to the Stockholder with such payments to
be applied in the order due in accordance with Section 7.
(e) CLOSING. Closing on the sale of any shares of Stock sold
pursuant to Section 4 of this Agreement shall, unless otherwise agreed to in
writing by the purchaser(s) and the transferring Stockholder, or otherwise
provided in this Agreement, be held at the principal place of business of DHS
(i) thirty (30) days from (A) the date that the last applicable period for
exercising an unexercised option to purchase has lapsed, (B) the date an option
to purchase is accepted or exercised, or (C) with respect to a sale as the
result of the disability of Rifkin or Kimmel pursuant to Section 4(f)(ii), the
date of delivery of the notice required thereunder, or (C)
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the occurrence of any event set forth in Section 4(a) (other than death of a
Management Stockholder), or (ii) with respect to the death of a Management
Stockholder, ninety (90) days after the appointment and qualification of a
deceased Management Stockholder's personal representative (collectively, the
"CLOSING DATE"); PROVIDED THAT, if an appraiser or appraisers are appointed to
determine the purchase price pursuant to Section 6, then the Closing shall take
place on a date no later than thirty (30) days from the receipt by the selling
Stockholder and the purchaser of the determination of the fair market value of
the Stock if such Closing Date would occur later than the Closing Date otherwise
determined pursuant to this Section 7(e). At the Closing, upon payment of the
purchase price (including delivery of the notes), the certificates representing
the Stock to be purchased and sold hereunder shall be delivered by the selling
Stockholder (or his personal or legal representatives, as the case may be) to
the purchaser(s), appropriately endorsed in blank for transfer. If the
certificates representing any shares of Stock to be so transferred have not been
surrendered by the selling Stockholder, all rights of the holder thereof with
respect to said Stock (including voting rights) nonetheless shall cease and
terminate.
8. LIFE INSURANCE.
(a) PURCHASE AND OWNERSHIP OF POLICIES. As soon as practicable
following the execution of this Agreement, DHS shall use its commercially
reasonable best efforts to purchase a life insurance policy on the life of each
Management Stockholder in such amounts, if any, as DHS' Board of Directors deems
reasonable and appropriate. DHS shall be the owner and beneficiary of each such
policy, and any proceeds received thereunder shall be held by DHS in trust for
the purposes of satisfying DHS' purchase obligations hereunder. Each Management
Stockholder agrees to cooperate with DHS in obtaining, and in keeping in full
force and effect, all such policies. Once a policy has been purchased, DHS
shall maintain all such insurance policies in full force and effect and shall
not, without the prior written consent of the respective Management Stockholder,
cancel any such policy or take or omit to take any action which might give rise
to the termination or cancellation thereof. DHS shall pay premiums on all
insurance policies as they become due. DHS may, when it deems appropriate,
apply any dividends declared and paid on such policies to the payment of
premiums. No party hereto shall have any obligations hereunder to the extent a
Management Stockholder is either uninsurable or may not be insured as herein
contemplated at upon commercially reasonable terms. Notwithstanding the
foregoing, DHS may, in lieu of or in addition to policies of insurance acquired,
owned and administered as set forth above, in the discretion of its Board of
Directors, provide as benefits to its employees, including Management
Stockholders, such other and additional policies of insurance or other insurance
benefit plans on such other or additional terms and conditions, including
ownership of policies of insurance in whole or in part by employees, including
Management Stockholders, as it deems reasonable and appropriate.
(b) Option to Purchase Policies. If a Management Stockholder
transfers all of his Stock during his lifetime pursuant to Sections 4 or 5, or
if this Agreement is terminated without being superseded by a similar agreement
prior to such Management Stockholder's death, such Management Stockholder, or
any designee of such Management Stockholder, shall have the right, during the
sixty (60) day period beginning with the date of transfer or termination of this
Agreement, to purchase any life insurance policy insuring his life owned by DHS
by paying DHS an amount equal to the cash surrender value of such policy
(determined after payment of all policy loans incurred to pay premiums due
thereunder and interest thereon) as of the date of purchase, plus the unearned
portion of any premiums which shall have been paid thereon.
9. VOTING BY STOCKHOLDERS.
(a) SALE OF STOCKHOLDER'S STOCK. If any vote, consent, determination
or other action is required or permitted to be made by the Stockholders and/or
by DHS pursuant to
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the terms of this Agreement in order to authorize and permit DHS to exercise any
of its rights hereunder, any Stockholder who would, upon exercise of said rights
by DHS, thereby become obligated to sell his Stock, shall cast his vote and
otherwise act, (i) as a Stockholder, by voting his stock in the same manner as
do the holders of a majority of shares of Stock other than his own, and, (ii) as
a director, by voting in the same manner as do a majority of the directors other
than himself. A Stockholder who becomes obligated to sell his shares of Stock
hereunder shall execute such instruments as may be necessary or appropriate to
effect any action required or permitted to be taken by the Stockholders and the
directors of DHS pursuant to the terms of this Agreement.
(b) CLASS A DIRECTORS. Each of the present and future holders of
Class A Common Stock hereby agrees (i) to vote his shares of Stock to elect
Stewart Gold, Alan Kimmel, and Scott Rifkin, as three of DHS' Class A Common
Stock Directors for as long as their respective Employment Agreements with DHS
are in full force and effect, and (ii) if then serving as a Class A Common Stock
Director, to offer to resign as a director immediately upon termination of his
employment with DHS.
(c) ISSUANCE OF ADDITIONAL SHARES OF STOCK. Subject to such rights
of the Series A Preferred Stock Directors pursuant to Article IV, Section B.1(c)
of the DHS Amended and Restated Articles, to such rights of the Series B
Preferred Stock Directors pursuant to Article IV, Section C.1(c) of the DHS
Amended and Restated Articles, to such rights of the Series C Preferred Stock
Directors pursuant to Article IV, Section D.1(c) of the DHS Amended and Restated
Articles, to such rights of the holders of Series A Preferred Stock pursuant to
Article IV, Section B.1(e) of the DHS Amended and Restated Articles, to such
rights of the holders of Series B Preferred Stock pursuant to Article IV,
Section C.1(e) of the DHS Amended and Restated Articles, and to such rights of
the holders of Series C Preferred Stock pursuant to Article IV, Section D.1(e)
DHS Amended and Restated Articles, to exercise their respective rights with
respect to the matters set forth therein, each Stockholder agrees (i) to vote
his or its shares of Stock, (ii) to use commercially reasonable best efforts to
cause his or its Affiliates to vote their shares of Stock, and (iii) if serving
as a Director of DHS, to vote as a Director, to cause DHS to issue additional
shares of stock to the Persons and in the amounts as are necessary:
(1) to comply with the provisions of a public offering of DHS
Common Stock pursuant to a registration statement filed with the Securities and
Exchange Commission;
(2) to fund or comply with the provisions of a stock option
plan, restricted option plan, employee stock purchase plan, stock bonus plan or
other employee stock plan or benefit approved and implemented by the Board for
the benefit of officers, directors or employees of DHS, provided that the
aggregate numbers of shares issued in respect of all such plans shall not exceed
ten percent (10%) of the fully diluted capital stock of DHS calculated as of the
time of the issuance and after giving effect thereto;
(3) upon conversion of any shares of Convertible Preferred
Stock;
(4) for the acquisition of another corporation by DHS by merger,
purchase of substantially all of the assets of such corporation or other
reorganization resulting in the ownership by DHS of not less than fifty percent
(50%) of the voting power of such corporation;
(5) as a result of a stock split, stock dividend or
reclassification of shares of Common Stock distributable on a pro rata basis to
all holders of Common Stock, with respect to any shares of Stock which have been
repurchased by DHS and are being resold; and/or
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(6) to permit BMGGP, Inc., as General Partner of the LP, to
issue Additional Limited Partner Interests upon acquisition of additional
Medical Practices from and after the time that there are sixty-six (66)
physicians who hold Limited Partner Interests in the LP (including options to
purchase Limited Partner Interests) directly or indirectly through their
professional corporations.
10. SPECIFIC PERFORMANCE. Because the shares of Stock cannot be readily
purchased or sold in the open market, irreparable damage would result in the
event this Agreement is not specifically enforced. Therefore, the rights to, or
obligations of, any party shall be enforceable in a court by a decree of
specific performance, and appropriate injunctive relief may be applied for and
granted in connection therewith. Such remedies, and all other remedies provided
for in this Agreement, shall, however, be cumulative and not exclusive and shall
be in addition to any other remedies which any party may have under this
Agreement or otherwise. Notwithstanding any other provision of this Agreement,
including, without limitation, the provisions of this Section 9, holders of
Convertible Preferred Stock shall have no obligation to vote for any matter
which requires the consent of such Stockholders or of the directors of DHS
elected by them under the Amended and Restated Articles of Incorporation of DHS.
11. GUARANTEE OF CERTAIN MANAGEMENT STOCKHOLDERS
(a) Pursuant to the terms and conditions of Gold, Rifkin and Kimmel's
respective DHS Employment Agreements, such Management Stockholders are each
required to secure, or to assist the other officers and employees of DHS in
securing, financing for DHS to satisfy DHS' capital requirements as set forth in
its financial projections. The parties hereto have entered into the
transactions contemplated by the Practice Participation Agreement on the
assumption that DHS would receive cash as a result of equity financing in an
amount of not less than $5 million on or before February 28, 1998 (the "FINAL
MATURITY DATE").
(b) If DHS does not receive at least $5 million of cash as a result
of equity financing proceeds by the Final Maturity Date, the amount of equity
financing proceeds actually received by DHS on or before such date shall be
subtracted from $5 million (such positive difference being the "remainder"), and
each of Gold, Rifkin and Kimmel shall present to DHS for cancellation, and DHS
shall immediately cancel that number of shares of Class A Common Stock held by
each such Management Stockholder equal to the product of the number of fully
diluted shares of Class A Common Stock held by such Management Stockholder on
the Closing Date, times a fraction, (i) the numerator of which shall be such
remainder, and (ii) the denominator of which shall be 5 million.
(c) Each of the parties hereto acknowledges and agrees that any
transfer of shares of Class A Common Stock pursuant to the provisions of this
Section 11 shall not be subject to the limitations and restrictions on transfer,
and the rights granted to the other Stockholders and DHS with respect to
transfers, as otherwise provided in Section 5 hereof.
(d) Each of the Management Stockholders and DHS hereby agree that the
provisions of this Section 11 shall be deemed to be amendments to each
Management Stockholder's respective DHS Employment Agreement, and hereby becomes
a part thereof.
(e) For purposes of this Section 11, an equity financing shall
include any transaction in which Capital Stock of DHS is issued in return for
cash.
12. SEVERABILITY. It is the express intention of the parties that the
agreements contained herein shall have the widest application possible. If any
agreement contained herein is
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found by a court having jurisdiction to be unreasonable in scope or character,
the agreement shall not be rendered unenforceable thereby, but the parties shall
in good faith negotiate a modification to the agreement that preserves the
essence of the agreement of the parties contained herein with retroactive effect
to render such agreement reasonable and such agreement shall be enforced as thus
modified. If the court having jurisdiction will not review the agreement, then
the parties shall mutually agree to a revision having an effect as close as
permitted by law to the provision declared unenforceable. The parties further
agree that in the event a court having jurisdiction determines, despite the
express intent of the parties, that any portion of any covenant or agreement
contained herein is not enforceable, the remaining provisions of this Agreement
shall nonetheless remain valid and unenforceable.
13. ENDORSEMENT OF CERTIFICATE. Upon the execution of this Agreement, each
certificate of Stock of DHS now registered in the name of a Stockholder and
subject hereto shall be endorsed by the Secretary of Company as follows:
"This certificate is transferable only upon compliance with the
provisions of a restrictive agreement dated January 31, 1997, by and among
Doctors Health System, Inc. and certain of its stockholders, a copy of which is
on file in the office of the Secretary of DHS and is available upon request of
any stockholder without charge."
All certificates for any shares of Stock hereinafter issued to
Stockholders shall bear the same endorsement, and this Agreement shall cover all
such stock.
14. TERM. Anything contained herein to the contrary notwithstanding, this
Agreement shall terminate, and all rights and obligations shall cease, except
for rights and obligations under any then extant promissory note pursuant to
Section 7 hereof, upon the occurrence of any of the following events:
(i) The written agreement of each of the then parties hereto; or
(ii) The cessation of DHS' business; or
(iii) The bankruptcy, liquidation, receivership, or dissolution
of, or assignment for the benefit of creditors by, DHS;
(iv) Any Change in Control of DHS; or
(v) The consummation of any public offering of DHS Capital Stock.
15. NOTICES. All notices, offers, acceptances, requests and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed by certified or registered mail to a
Stockholder, as may be required, at their addresses on DHS records, and to DHS
at DHS's principal place of business. Any party hereto may change his or its
address for notice by giving notice thereof in the manner hereinabove provided.
16. AMENDMENT. Any term or condition set forth in this Agreement may be
amended, modified or altered, and additional terms and conditions may be
incorporated into this Agreement only with the express written consent of all of
DHS and the Stockholders. All of such amendments, modifications, alterations or
additions shall be effective as of the date of such unanimous consent, shall be
in writing, and shall be provided to each of the parties hereto.
17. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof. This
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Agreement shall be binding upon, and inure to the benefit of, and shall be
enforceable by, the heirs, successors, assigns, and personal representatives of
the parties hereto. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland, without regard to principles
of conflicts of law. In case any term of this Agreement shall be held invalid,
illegal or unenforceable in whole or in part, neither the validity of the
remaining part of such term nor the validity of the remaining terms of this
Agreement shall in any way be affected thereby. Each of the parties agrees that
he will consent to and approve any amendments of the DHS Amended and Restated
Articles or by-laws of DHS which may be necessary or advisable in order to
conform any of the provisions of this Agreement or any amendments hereto to the
applicable laws of the State of Maryland as now or hereafter enacted. Each
Stockholder agrees to vote his shares of Stock in DHS and to execute and deliver
such documents as may be necessary in order to implement the provisions of the
preceding sentence. Nothing set forth or referred to herein expressed or
implied is intended or shall be construed to convey upon or give to any person
other than the parties and their successors or permitted assigns, any rights or
remedies under or by reasons of this Agreement. Each of the Stockholders agrees
that, if DHS is able to enter into any arrangement with a Management Stockholder
or another Stockholder, regarding the repurchase of such Management
Stockholder's or other Stockholder's capital stock that is manifestly more
favorable to DHS than the arrangements set forth herein, to execute and deliver
to an amendment to this Stockholders Agreement reflecting such arrangement.
18. INTERPRETATION. The parties and their respective legal counsel and
accountants actively participated in the negotiation and drafting of this
Agreement, and in the event of any ambiguity or mistake herein, or any dispute
among the parties with respect to the provisions hereof, no provision in this
Agreement shall be construed unfavorable against any of the parties on the
ground that it or its counsel was the drafter thereof.
19. WILLS. Each Management Stockholder shall promptly execute a will or
codicil to his will authorizing and directing his personal representatives to
perform all of his obligations under this Agreement, but the failure to execute
such a will shall not affect the rights of the remaining Stockholders or the
obligations of their personal representatives, heirs, descendants, or estates,
as provided in this Agreement.
20. CANCELLATION OF PRIOR AGREEMENT. This Agreement supersedes and
replaces that certain Stockholders Agreement by and among DHS, the Management
Stockholders, the LP, the Series A Investor and the Series B Investor, dated
September 4, 1996 (the "OLD STOCKHOLDERS AGREEMENT") in its entirety. The Old
Stockholders Agreement is hereby cancelled, rescinded and abrogated.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as an instrument under seal as of the date first above written.
WITNESS/ATTEST: DOCTORS HEALTH SYSTEM, INC.
By:
- ------------------------ -------------------------
Stewart B. Gold, President
MANAGEMENT STOCKHOLDERS:
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- ------------------------- -----------------------------
Stewart B. Gold, individually
- ------------------------- -----------------------------
Scott M. Rifkin, individually
- ------------------------- -----------------------------
_________________________ -----------------------------
Alan Kimmel, individually
MEDICAL HOLDINGS LIMITED
PARTNERSHIP
By: BMGP, Inc., its General
Partner
By:
- ------------------------- -------------------------
Scott M. Rifkin, President
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ST. JOSEPH MEDICAL CENTER, INC.
By:
- ------------------------- --------------------------
Name: John S. Prout
Title: President & CEO
MED-LANTIC MANAGEMENT
SERVICES, INC.
By:
- ------------------------- --------------------------
Name:
Title:
GENESIS HEALTH VENTURES, INC.
By:
- ------------------------- --------------------------
Name:
Title:
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EXHIBIT 1
MANAGEMENT STOCKHOLDERS
Shares Percent
------ -------
Stewart B. Gold 600,000 75%
Scott Rifkin 100,000 12.5%
Alan Kimmel 100,000 12.5%
