As filed with the Securities and Exchange Commission on March 12, 1998
Registration No. 333-____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DOCTORS HEALTH, INC.
--------------------
(Exact name of issuer as specified in its charter)
DELAWARE 52-1907421
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10451 MILL RUN CIRCLE 21117
- --------------------- -----
OWINGS MILLS, MARYLAND (Zip Code)
- ----------------------
(Address of principal executive offices)
DOCTORS HEALTH, INC. AMENDED AND RESTATED OMNIBUS STOCK PLAN
------------------------------------------------------------
(Full title of plan)
(Name, address and telephone (Copy to:)
number of agent for service)
STEWART B. GOLD JAMES A. GAST, ESQUIRE
PRESIDENT SENIOR VICE PRESIDENT
DOCTORS HEALTH, INC. DOCTORS HEALTH, INC.
10451 MILL RUN CIRCLE, 10TH FLOOR 10451 MILL RUN CIRCLE, 10TH FLOOR
OWINGS MILLS, MARYLAND 21117 OWINGS MILLS, MARYLAND 21117
(410) 654-5800 (410) 654-5800
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Title of Amount Proposed maximum Proposed maximum Amount of
securities to to be offering price aggregate offering registration
be registered registered per share price fee
- ----------------------------------------------------------------------------------------------------------------
<S><C>
Class A Common
Stock (par value 1,000,000* $3.50** $3,500,000* $1,032.50*
$0.01 per share) shares
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes an indeterminate number of shares of Common Stock that may be
issuable by reason of stock splits, stock dividends or similar
transactions in accordance with Rule 416 under the Securities Act of 1933.
** Calculated solely for purposes of calculating the registration fee
pursuant to Rule 457(h)(1), the proposed maximum offering price per share,
proposed maximum aggregate offering price and the amount of the
registration fee have been computed as of March 6, 1998, the latest
practicable date prior to the date of this filing.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
Not required to be included in the Form S-8 pursuant to Note to Part I
of Form S-8.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
---------------------------------------
The following documents which have been filed by the Registrant with
the Securities and Exchange Commission (the "Commission") are incorporated
herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended June 30,
1997.
(b) All other reports filed pursuant to Sections 13(a) or 15(d) of
the Securities Exchange Act of 1934 ("Exchange Act") since the
end of the fiscal year covered by the registration document
referred to in (a) above.
(c) Description of common stock of the Registrant contained or
incorporated in the registration statements filed by the
Registrant with the Commission, including any amendments or
reports filed for the purpose of updating such description.
All documents subsequently filed by the Registrant with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act,
prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which de-registers all securities remaining
unsold, shall be deemed to be incorporated by reference into this Registration
Statement and to be a part of the Registration Statement from the date of filing
of such document.
ITEM 4. DESCRIPTION OF SECURITIES.
-------------------------
The Registrant is authorized to issue 20,700,000 shares of Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock"), 10,000,000
shares of Class B Common Stock, par value $0.01 per share (the "Class B Common
Stock"), 29,050,000 shares of Class C Common Stock, par value $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 are hereinafter collectively
<PAGE>
referred to as the "Common Stock"), 1,000,000 shares of Series A Convertible
Preferred Stock, par value $5.00 per share (the "Series A Preferred Stock"),
438,068 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"),
5,750,000 shares of Series D Preferred Stock, par value $10.00 per share (the
"Series D Preferred Stock") (the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
are hereinafter collectively referred to as the "Preferred Stock"). Shares of
the Preferred Stock are convertible into shares of Class C Common Stock.
The following summary description of the capital stock of the
Registrant is qualified in its entirety by reference to the Registrant's
Certificate of Incorporation (the "Charter"), Bylaws, Shareholders and Voting
Agreement (the "Shareholders' Agreement"), Shareholders Letter Agreement (the
"Letter Agreement"), and the form of Stockholders' Agreement, which are
incorporated by reference to the Registrant's prior filings with the Commission
into this Registration Statement. Subject to the rights, privileges and
restrictions described below, each issued and outstanding share of the Common
Stock and the Preferred Stock entitles the holder thereof to one vote on all
matters to be voted on by the stockholders of the Registrant. There are no
preemptive rights or sinking fund provisions with respect to any of the
Registrant's capital stock.
All shares of the Common Stock are subject to significant restrictions
on transfer and will carry a legend to reflect such restrictions. The capital
stock may be transferred only as permitted by the Shareholders' Agreement, the
Letter Agreement and the Charter. The Shareholders' Agreement contemplates that
the Registrant may redeem shares of its stock upon an "Involuntary Transfer"
resulting generally from the insolvency of a stockholder, or upon divorce or
death of an individual stockholder. Voluntary transfers are permitted only after
a stockholder offers its stock, upon the same terms and conditions contained in
the offer it wishes to accept, to certain principal and management stockholders
on the terms set out in the Shareholders' Agreement. Individual Stockholders may
in certain circumstances make estate planning transfers for the benefit of
themselves or family members on certain conditions.
Except as otherwise provided in the Charter, holders of Common Stock
are entitled to one vote per share with respect to all matters submitted to a
vote of stockholders and do not have cumulative voting rights. Subject to
preferences that may be applicable to any outstanding shares of Preferred Stock,
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available therefor.
Upon liquidation, dissolution or winding up of the Registrant, holders of Common
Stock are entitled to share ratably in assets available for distribution after
payment of all debts and other liabilities and subject to the prior rights of
any holders of any preferred stock then outstanding. The Registrant has not
declared any cash dividends with respect to any of its outstanding Common Stock
since its inception and does not anticipate declaring any such dividends in the
foreseeable future. The Registrant's Charter restricts its ability to declare
and pay cash dividends on its Common Stock until such time as all outstanding
shares of Preferred Stock have been redeemed or converted and
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<PAGE>
all accrued dividends and interest payable with respect to such shares of
Preferred Stock have been paid.
In general, the rights corresponding to each class of the Registrant's
Common Stock may be altered by an amendment to the Registrant's Certificate of
Incorporation which requires the affirmative vote of a majority of the votes
attributable to all of the outstanding Common and Preferred Stock.
CLASS A COMMON STOCK
The holders of the Class A Common Stock, voting separately as a class,
are entitled to elect six of the 20 directors of the Registrant (each a "Class A
Director"). The affirmative vote of a majority of the stock of Class A Common
Stock represented at a meeting at which a quorum is present is sufficient to
approve any matter with respect to which such holders are entitled to vote;
provided, that the affirmative vote of a plurality of all votes cast shall be
sufficient to elect a Class A Director. The holders of Class A Common Stock, at
any annual meeting or upon a special meeting called by the holders of not less
than 25% of the shares of Class A Common Stock then outstanding, may remove any
Class A Director by the affirmative vote of 80% of all of the votes entitled to
be cast for such Class A Director.
CLASS B COMMON STOCK
The holders of the Class B Common Stock, voting separately as a class,
are entitled to elect eight of the 20 directors of the Registrant (each a "Class
B Director"). The affirmative vote of a majority of the stock of Class B Common
Stock represented at a meeting at which a quorum is present is sufficient to
approve any matter with respect to which such holders are entitled to vote;
provided, that the affirmative vote of a plurality of all votes cast shall be
sufficient to elect a Class B Director. The holders of Class B Common Stock, at
any annual meeting or upon a special meeting called by the holders of not less
than 25% of the shares of Class B Common Stock then outstanding, may remove any
Class B Director by the affirmative vote of at least a majority of all of the
votes entitled to be cast for such Class B Director.
CLASS C COMMON STOCK
Upon the conversion of all of the Series A Preferred Stock then
outstanding into shares of Class C Common Stock, the holders of such Class C
Common Stock into which such Series A Preferred Stock has been converted, voting
as a single sub-class ("Class C Series A Common Stock"), shall be entitled to
elect one of the 20 directors of the Registrant (a "Class C Series A Director").
Upon the conversion of all of the Series B Preferred Stock then outstanding into
shares of Class C Common Stock, the holders of such Class C Common Stock into
which such Series B Preferred Stock has been converted, voting as a single
sub-class ("Class C Series B Common Stock"), shall be entitled to elect one of
the 20 directors of the Registrant (a "Class C Series B Director"). Upon the
conversion of all of the Series C Preferred Stock then outstanding into shares
of Class C Common Stock, the holders of such Class C Common Stock into which
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<PAGE>
such Series C Preferred Stock has been converted, voting as a single sub-class
("Class C Series C Common Stock"), shall be entitled to elect two of the 20
directors of the Registrant (each a "Class C Series C Director"). Upon the
conversion of all of the Series D Preferred Stock then outstanding into shares
of Class C Common Stock, the holders of such Class C Common Stock into which
such Series D Preferred Stock has been converted, voting as a single sub-class
("Class C Series D Common Stock"), shall be entitled to elect two of the 20
directors of the Registrant (each a "Class C Series D Director"). Except with
respect to the election of Directors, the affirmative vote of a majority of the
stock of Class C Common Stock represented at a meeting at which a quorum is
present is sufficient to approve any matter with respect to which such holders
are entitled to vote; provided, that the affirmative vote of a plurality of all
votes cast by the holders of shares of such Class C Series A Common Stock, Class
C Series B Common Stock, Class C Series C Common Stock, or Class C Series D
Common Stock, as the case may be, shall be sufficient to elect a Class C Series
A Director, Class C Series B Director, Class C Series C Director, or Class C
Series D Director, respectively. The Class C Series A Common Stock, Class C
Series B Common Stock, Class C Series C Common Stock, or Class C Series D Common
Stock, as the case may be, at any annual meeting or upon a special meeting
called by the holders of not less than 25% of the shares of such subclass
outstanding may remove the Class C Series A, Class C Series B, Class C Series C,
or Class C Series D Director, respectively, by the affirmative vote of 80% of
all of the votes entitled to be cast for such Director.
The Charter of the Registrant includes a provision pursuant to which,
upon completion of a firm commitment underwritten initial public offering, each
share of the Registrant's Class A Common Stock, Class B Common Stock, and Class
C Common Stock shall be converted, without any action on the part of the
stockholder or the Registrant, into an identical share of the Registrant's
Common Stock, and all special rights granted to the holders of Class A, Class B,
and Class C Common Stock and to all holders of Series A, Series B, Series C, and
Series D Preferred Stock shall cease and terminate.
The special voting and approval rights of the holders of the Preferred
Stock and their rights to require the redemption of the Preferred Stock or to
convert such Preferred Stock into Class C Common Stock may prevent the
Registrant from consummating one or more transactions, including equity and debt
financings that could be beneficial to the Registrant's stockholders. The
special voting rights of holders of Preferred Stock could also prevent the
Registrant from entering into various transactions such as mergers,
consolidations, or transfers of all or substantially all of the assets of the
Registrant which might result in a change in control of the Registrant.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
--------------------------------------
Certain legal matters in connection with the issuance of the Common
Stock offered by the Registrant pursuant to this Registration Statement are
being passed upon for the Registrant by James A. Gast, Esquire, who is an
officer of the Registrant. As of March 12, 1998, Mr. Gast owned no shares of the
Company's Common Stock and he held options to purchase 30,000 shares
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<PAGE>
of the Company's Class A Common Stock, of which no options were presently
exercisable. Mr. Gast is a participant in the Doctors Health, Inc. Amended and
Restated Omnibus Stock Plan.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The Certificate of Incorporation of the Registrant provides for
indemnification and limitation of liability of directors and officers of the
Registrant in Articles VI and VII as follows:
ARTICLE VI
----------
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that the foregoing
shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of Delaware, or (iv)
for any transaction from which the director derived an improper
personal benefit. If the GCL is hereafter amended to permit further
elimination or limitation of the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the GCL as so amended. Any
repeal or modification of this ARTICLE VI by the stockholders of the
Corporation or otherwise shall not adversely affect any right or
protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE VII
-----------
1. Indemnification Of Directors, Officers, Employees Or
Agents. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a
director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
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<PAGE>
which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful. For purposes of this ARTICLE VII, any person who, pursuant to
a provision in this Certificate of Incorporation, exercises or performs
any of the powers or duties conferred or imposed upon the Board of
Directors of the Corporation shall be entitled to all the benefits
conferred upon directors and officers of the Corporation (including
without limitation, the right to indemnification and advancement of
expenses) set forth in this ARTICLE VII.
If approved by the Board of Directors, the Corporation may
indemnify its employees and agents in connection with their services in
such capacities upon the same terms and conditions of indemnification
available to the Corporation's directors and officers pursuant to
Sections 1 and 2 of this ARTICLE VII.
The Board of Directors may by resolution or agreement make
further provision for indemnification of directors, officers, employees
and agents of the Corporation.
2. Indemnification In Derivative Actions. The Corporation
shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as
a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of
the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
3. Indemnification For Expenses In Certain Cases. To the
extent that a director, officer, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this
ARTICLE VII, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
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4. Procedure. Any indemnification under Sections 1 and 2 of
this ARTICLE VII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such Sections 1 and 2. Such
determination shall be made (a) by a majority vote of the directors who
were not parties to such action, suit or proceeding, even though less
than a quorum, or (b) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion,
or (c) by the stockholders.
5. Advances For Expenses. Expenses (including attorneys' fees)
incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount
if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this ARTICLE VII. Such
expenses (including attorneys' fees) incurred by employees and agents
may be so paid upon such terms and conditions, if any, as determined by
the Board of Directors.
6. Rights Not-Exclusive. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections
of this ARTICLE VII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may
be entitled under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office.
7. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this ARTICLE VII.
8. Definition Of Corporation. For the purposes of this ARTICLE
VII, references to "the Corporation" include the Corporation and all
constituent corporations absorbed in a consolidation or merger which,
if its existence had continued would have had the power and authority
to indemnify its directors and officers, as well as the resulting or
surviving corporation so that any person who is
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or was a director or officer of such a constituent corporation or is or
was serving at the request of such constituent corporation as a
director or officer of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the
provisions of this ARTICLE VII with respect to the resulting or
surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.
9. Survival Of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to this ARTICLE VII shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. No subsequent amendment
of this ARTICLE VII shall diminish the rights hereunder of any
director, officer, employee or agent with respect to any action taken
or claim made prior to such amendment.
The Registrant's Amended and Restated By-laws provide for similar
indemnification and limitation of liability of directors and officers of the
Registrant in Article XI as follows:
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.
[Note: The Company intends to revise the Bylaws to refer to Delaware General
Corporation Law.]
Section 145 of the General Corporation Law of the State of
Delaware permits a corporation to indemnify its directors and officers against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties, if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action
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<PAGE>
or suit was brought shall determine upon application that the defendant officers
or directors are reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the State
of Delaware provides that a corporation may eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
As permitted under Section 145(g) of the General Corporation Law of the
State of Delaware, the Registrant has purchased and maintains insurance on
behalf of its directors and officers against any liability asserted against such
directors and officers in their capacities as such whether or not the Registrant
would have the power to indemnify such persons under the provisions of the
Delaware law governing indemnification.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
-----------------------------------
Not applicable.
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ITEM 8. EXHIBITS.
--------
Exhibit
Number Description
- ------- -----------
4.1 Certificate of Incorporation of the Registrant dated September
29, 1997 (filed herewith)
4.2 Amended and Restated Bylaws of the Registrant, effective
July 15, 1997 (incorporated herein by reference to Exhibit
3.4 filed with the Registrant's Current Report on Form 8-K
filed on July 21, 1997)
4.3 Shareholders and Voting Agreement, dated July 15, 1997
(incorporated herein by reference to Exhibit 10.4 filed with
the Registrant's Current Report of Form 8-K filed on July
21, 1997)
4.4 Form of Shareholders Letter Agreement (incorporated herein by
reference to the Prospectus Supplement to the Registration
Statement filed on August 29, 1997)
4.5 Form of Stockholders Agreement (filed herewith)
5 Opinion of James A. Gast, Esquire, Regarding the Legality of
the shares of Common Stock (contains Consent of Counsel)
(filed herewith)
23.1 Consent of Independent Public Accountants (filed herewith)
23.2 Consent of Independent Public Accountants (filed herewith)
23.3 Consent of Counsel (included in Exhibit 5)
24 Power of Attorney (filed herewith)
ITEM 9. UNDERTAKINGS.
------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
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Paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Owings Mills, Maryland, on this 12th day of March, 1998.
DOCTORS HEALTH, INC.
By: /s/ Stewart B. Gold
-------------------
Stewart B. Gold
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S><C>
/s/ Stewart B. Gold Chief Executive Officer, President, Director March 11, 1998
- ------------------------------------ (Principal Executive Officer)
Stewart B. Gold
/s/ John R. Dwyer, Jr. Chief Financial Officer, Treasurer and March 11, 1998
- ------------------------------------ Director (Principal Financial Officer)
John R. Dwyer, Jr.
/s/ Kyle R. Miller Vice President of Finance March 11, 1998
- ------------------------------------ (Principal Accounting Officer)
Kyle R. Miller
/s/ Thomas G. Mendell Director March 11, 1998
- ------------------------------------
Thomas G. Mendell
/s/ Eric R. Wilkinson Director March 11, 1998
- ------------------------------------
Eric R. Wilkinson
</TABLE>
A majority of the Board of Directors (Alan L. Kimmel, M.D.,
Robert A. Barish, M.D., Richard L. Diamond, M.D., John R. Dwyer, Jr., Mark H.
Eig, M.D., Stewart B. Gold, Robert G. Graw, Jr., M.D., Albert Herrera, M.D.,
Richard R. Howard, William D. Lamm, M.D., J. David Nagel, M.D., D. Alexander
Rocha, M.D.)
*By /s/ Stewart B. Gold Date: March 11, 1998
-------------------------------------
Stewart B. Gold
Attorney-in-Fact
-12-
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
4.1 Certificate of Incorporation of the Registrant, dated
September 29, 1997 (filed herewith)
4.2 Amended and Restated Bylaws of the Registrant,
effective July 15, 1997 (incorporated herein by
reference to Exhibit 3.4 filed with the
Registrant's Current Report on Form 8-K filed on July
21, 1997)
4.3 Shareholders' and Voting Agreement, dated July 15,
1997 (incorporated herein by reference to Exhibit 10.4
filed with the Registrant's Current Report of Form 8-K
filed on July 21, 1997)
4.4 Form of Shareholders Letter Agreement (incorporated
herein by reference to the Prospectus Supplement to
the Registration Statement filed on August 29,
1997)
4.5 Form of Stockholders Agreement
5 Opinion of James A. Gast, Esquire, Regarding the
Legality of the shares of Common Stock (contains
Consent of Counsel)
23.1 Consent of Independent Public Accountants
23.2 Consent of Independent Public Accountants
23.3 Consent of Counsel (contained in Exhibit 5)
24 Power of Attorney
-13-
CERTIFICATE OF INCORPORATION
OF
DOCTORS HEALTH, INC.
ARTICLE I
---------
The name of the corporation is Doctors Health, Inc. (the
"Corporation").
ARTICLE II
----------
The address of the registered office of the Corporation in the
State of Delaware is [Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle, Delaware, 19801. The name of the
Corporation's registered agent at such address is The Corporation Trust
Company].
ARTICLE III
-----------
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware (the "GCL").
ARTICLE IV
----------
The Corporation is authorized to issue 118,438,068 shares of
capital stock, of which 50,000,000 shares are Common Stock, par value $0.01 per
share ("Post-Conversion Common Stock"); 20,700,000 shares are Class A Common
Stock, par value $0.01 per share (the "Class A Common Stock"); 10,000,000 shares
are Class B Common Stock, par value $0.01 per share (the "Class B Common
Stock"); 29,050,000 shares are Class C Common Stock, par value $0.01 per share
(the "Class C Common Stock"), of which 1,500,000 shares are Class C Common Stock
Series A (the "Class C Series A Stock"), 1,000,000 shares are Class C Common
Stock Series B (the "Class C Series B Stock"), 2,500,000 shares are Class C
Common Stock Series C (the "Class C Series C Stock"), 10,000,000 shares are
Class C Common Stock Series D (the "Class C Series D 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 $5.00 per share (the "Series A Preferred
Stock"); 438,068 shares are Series B Convertible Preferred Stock, par value
$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 $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"). The powers, preferences and rights, and the
qualifications, limitations or restrictions of the Common Stock and the
Preferred Stock are as follows:
<PAGE>
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 shall 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. Sufficient shares of Post-Conversion Common Stock shall at all times be
reserved by the Corporation for issuance to the holders of Common Stock upon
conversion of all of the shares of Common Stock into shares of Post-Conversion
Common Stock.
1. Voting Rights.
(a) General Provisions. Except as otherwise provided herein,
every holder of Common Stock and Post-Conversion Common Stock shall be entitled
to cast, in person or by proxy, one vote for each share of Common Stock or
Post-Conversion Common Stock, as the case may be, 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 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 as a separate class; 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 separate 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 vacancy 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
-2-
<PAGE>
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 vacancy
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 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 Series A Stock, the
holders of Class C Series A Stock ("Class C Series A Stockholders"), voting
separately as a class, shall be entitled to elect one director of the
Corporation (the "Class C Series A Director").
(ii) Upon conversion of all of the shares of Series B
Preferred Stock then outstanding into shares of Class C Series B Stock, the
holders of shares of Class C Series B Stock ("Class C Series B Stockholders"),
voting separately as a class, shall be entitled to elect one director of the
Corporation (the "Class C Series B Director").
(iii) Upon conversion of all of the shares of Series
C Preferred Stock then outstanding into shares of Class C Series C Stock, the
holders of Class C Series C Stock ("Class C Series C Stockholders"), voting
separately as a class, shall be entitled to elect two directors of the
Corporation (the "Class C Series C Directors").
(iv) Upon conversion of all of the shares of Series D
Preferred Stock then outstanding into shares of Class C Series D Stock, the
holders of Class C Series D Stock ("Class C Series D Stockholders"), voting
separately as a class, shall be entitled to elect two directors of the
Corporation (the "Class C 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 a class, shall thereafter be entitled to elect in the aggregate
six directors (all such directors being hereinafter referred to as the "Class C
Common Directors").
-3-
<PAGE>
(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 Class C Series A Stockholders, Class C
Series B Stockholders, Class C Series C Stockholders or Class C Series D
Stockholders vote on the election of Class C Series A Directors, Class C Series
B Directors, Class C Series C Directors or Class C Series D Directors,
respectively, the affirmative vote of a plurality of all votes cast shall be
sufficient to elect a Class C Series A Director, Class C Series B Director,
Class C Series C Directors or Class C Series D Director, as the case may be.
(viii) At any annual meeting or upon a call of a
special meeting of holders of Class C Series A Stock, Class C Series B Stock,
Class C Series C Stock or Class C Series D Stock, respectively, by holders of
not less than 25% of the shares of Class C Series A Stock, Class C Series B
Stock, Class C Series C Stock or Class C Series D Stock, as the case may be,
then outstanding, Class C Series A Stockholders, Class C Series B Stockholders,
Class C Series C Stockholders or Class C Series D Stockholders, as the case may
be, may remove any Class C Series A Director, Class C Series B Director, Class C
Series C Director or Class C Series D Director, respectively, at any time and
from time to time with or without cause, voting separately, by the affirmative
vote of 80% of all of the votes entitled to be cast for the election of a Class
C Series A Director, Class C Series B Director, Class C Series C Director or
Class C Series D Director, as the case may be, and may elect a successor to fill
any resulting vacancy for the remainder of the term of such director.
(ix) If any Class C Series C Director or Class C
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 the
remaining Class C Series C Director or Class C Series D Director, as the case
may be, unless with respect to removal, the holders of Class C Series C or Class
C Series D have elected a successor Class C Series C Director or Class C 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 Class C Series C
Stock or Class C Series D Stock, as the case may be, by any such holder, the
vacancy shall be filled by the vote of the holders of Class C Series C Stock or
Class C Series D Stock, as the case may be voting separately as a class.
(x) If the Class C Series A Director or Class C
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 Class C Series A Stock or Class C Series B Stock, as the case
may be, voting separately as a class.
2. Dividends. Except as otherwise provided by law and the
provisions of this Certificate of Incorporation, dividends may be declared and
paid on Common Stock at such time and in such amounts as the Board of Directors
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 Preferred
Stock has been either redeemed by the Corporation or converted into shares of
-4-
<PAGE>
Common Stock as provided herein, and, in connection with 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 this Certificate of Incorporation, each share of
Common Stock or Post-Conversion Common Stock, as the case may be, shall be
entitled to share ratably with all other shares of Common Stock or
Post-Conversion Common Stock, as the case may be, 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 IPO, as
defined in Article IV.B hereof, of Post-Conversion Common Stock, (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 one share of Post-Conversion Common Stock, (ii) all references
in this Certificate of Incorporation to Class A Common Stock, Class B Common
Stock and Class C Common Stock, respectively, shall be deemed to refer to such
Post-Conversion Common Stock, (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, (iv) all shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock shall be retired and shall not thereafter
be reissued and (v) the Corporation shall, pursuant to Section 243(b) of the
GCL, file a certificate in accordance with Section 103 of the GCL amending this
Certificate of Incorporation so as to eliminate all reference to the Class A
Common Stock, Class B Common Stock and Class C Common Stock. 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 Post-Conversion Common Stock to which such holder
is entitled.
5. Certain Permitted Repurchases. The Corporation shall not
purchase any shares of its outstanding Common Stock without the consent of the
holders of a majority of the holders of each series of Preferred Stock voting
separately as a class on an 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 Corporation, as
provided in any employment, stock
-5-
<PAGE>
grant or physician participation or similar agreement 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 such
Series of Class C 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 of Directors, (ii)
shares of Common Stock issuable upon conversion, exchange or exercise of any
Common Stock Equivalents outstanding as of the applicable Issue Date and (iii)
shares of Series D Preferred Stock issued to Beacon pursuant to the terms of the
Preferred Stock Purchase
-6-
<PAGE>
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 Post-Conversion 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 Post-Conversion 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 vote 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 in this Certificate of Incorporation) 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 GCL.
(b) So long as any shares of a series of Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval of
the holder or holders of at least a majority of the then outstanding shares of
such series of Preferred Stock:
-7-
<PAGE>
(i) alter or change the powers, preferences or
rights of the shares of such series of Preferred Stock or otherwise amend this
Certificate of Incorporation whether, in either case, by merger, consolidation
or otherwise so as to affect adversely the rights 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 this Certificate of Incorporation 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 this Certificate of Incorporation cannot be paid in full because the
Corporation is prohibited by law from making such payment, then those funds that
are legally available shall 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 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 shall 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
-8-
<PAGE>
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 this Certificate of Incorporation, 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
separate 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 shall be redeemed, retired, purchased or otherwise acquired by
the Corporation without the consent of the holders of a majority of the then
outstanding shares of each series of Preferred Stock then outstanding, voting as
a separate class, that, at the time of such redemption, retirement, purchase or
acquisition, is senior in rank, with respect to redemptions, to the stock to be
redeemed, retired, purchased or otherwise acquired. 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 stockholders and (iii) effect redemptions as required
by Subsection C.3(b).
5. Conversion.
(a) Notwithstanding anything in this Certificate of
Incorporation 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 in 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), 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.
(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
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<PAGE>
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.
(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.
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(h) The Corporation shall not, by amendment of this
Certificate of Incorporation 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 this Certificate of Incorporation to be observed or
performed hereunder by the Corporation, but shall 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 shall 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 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 of Directors (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
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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
(with respect to the 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:
(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 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 to the holders
of its Common Stock;
(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
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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 ARTICLE IV, then, and in each such case, the Corporation shall
promptly deliver to the registered holders of shares 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 shall not thereafter
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, dissolution or winding up
(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 of Directors that by
its terms is junior to the Series A Preferred Stock ("Series A Junior
Securities").
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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 Director. 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 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 such
resulting vacancy 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
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(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 Board of Directors), 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 of Directors 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 Delaware 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 this Certificate of Incorporation.
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(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.
(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 shall be repayable without premium, shall be subordinated to all then
existing or thereafter created indebtedness of the Corporation and shall 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
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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 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 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
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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 this Certificate of Incorporation 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 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
Series A Stock at the then effective Series A Conversion Ratio (as determined in
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
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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 Class C Series A 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 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
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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 repurchasable 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 this Certificate of Incorporation 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 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.
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(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, dissolution or winding up
(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 of Directors 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 Director. 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 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 such
resulting vacancy 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.
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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 of
Directors), 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 of Directors (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 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 Delaware 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
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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 this Certificate of Incorporation.
(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 redemption 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;
(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
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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 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
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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 this Certificate of Incorporation 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 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 Corporation, to convert any and all shares of Series B
Preferred Stock owned by such holder into shares of Class C Series B 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
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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 Class C Series B 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 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
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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 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 this Certificate of
Incorporation 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.
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E. SERIES C PREFERRED STOCK.
Series C Preferred Stock shall rank, with respect to dividend
rights, redemption rights and rights on liquidation, dissolution or winding up
(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 of Directors 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 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 vacancy 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.
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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 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 of Directors), 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 of Directors 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 Delaware 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
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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 this Certificate of Incorporation.
(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, 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 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 this Certificate of Incorporation 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 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 Series C Stock at
the then effective Series C Conversion Ratio.
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(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 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 Class C Series C 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
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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 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 this Certificate of Incorporation 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
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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.
(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 PREFERRED STOCK.
Series D Preferred Stock shall rank, with respect to dividend
rights, redemption rights and rights on liquidation, dissolution or winding up,
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
of Directors (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 or series 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
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vacancy 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), 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 Approval of Certain Holders of Series D
Preferred Stock. Prior to the consummation of a Qualified IPO, notwithstanding
any other provision of this Certificate of Incorporation 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, this Certificate of Incorporation 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 securities
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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 redemptions of Series B Preferred Stock
pursuant to Subsection D.3 (b), redemption of shares of common stock that 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
(xiv) adopt or approve the annual budget or business
plan of the Corporation.
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2. Dividends.
(a) When and as declared by the Board of Directors 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 shall 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 of Directors
to be paid on Common Stock, 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 Securities of the same series or class to the extent required by
this Certificate of Incorporation) 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
redeemed, 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
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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 wire transfer to each holder the redemption price for the shares of Series
D Preferred Stock so redeemed.
(ii) Prior to a Qualified IPO, (a) if any action or
recommendation taken by the Executive Committee is overruled, rescinded, amended
or otherwise contravened, avoided or negated by the Board of Directors or (b)
the Board of Directors elects not to conduct the management of the Company in
accordance with Article V, Section 2 of this Certificate of Incorporation
(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 of
Directors, by written notice (a "Special Redemption Notice") to the Corporation
require the Corporation to redeem, out of
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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 of Directors 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 this Certificate of Incorporation 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 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 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 Series D 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
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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 Class C Series D 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 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
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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 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.
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<PAGE>
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 or (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
---------
1. The Board Of Directors. 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 series, shall not be increased or
decreased except as provided herein. The Corporation shall have (a) one Class C
Series A 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 Class
C Series B 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
Class C Series C 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 Class C Series D 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 Director, 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 Class C
Series A Director, the Class C Series B Director, the Class C Series C Directors
and the Class C Series D 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 Class C Series A
Stock, the Class C Series B Stock, the Class C Series C Stock, the Class C
Series D 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 this Certificate of Incorporation approved by the vote of
stockholders
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<PAGE>
entitled to vote at least two-thirds of the shares of the Class A Common Stock,
the Class B Common Stock, the Class C Series A Stock, the Class C Series B
Stock, the Class C Series C Stock, the Class C Series D 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 separate classes or
series.
2. Executive Committee. Except with respect to matters
requiring approval by the entire Board of Directors and matters that may not be
delegated to a committee of the Board of Directors under the GCL ("Reserved
Matters"), the authority of the Board of Directors to act on all matters shall
be vested in and exercised by an executive committee of the Board of Directors
(the "Executive Committee"). With respect to Reserved Matters, the Board of
Directors shall only act after receiving a recommendation of the Executive
Committee in connection therewith and to the extent permitted by the GCL 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 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 (i) the affirmative
vote of members who, in the aggregate, have a majority of the aggregate votes
that may be cast by members of the Executive Committee or (ii) the written
consent of all 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 of Directors 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.
ARTICLE VI
----------
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that the foregoing shall not
eliminate or limit the liability of a director (i) for any breach
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<PAGE>
of the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the GCL is hereafter amended to permit
further elimination or limitation of the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the GCL as so amended. Any repeal or
modification of this ARTICLE VI by the stockholders of the Corporation or
otherwise shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE VII
-----------
1. Indemnification Of Directors, Officers, Employees Or
Agents. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. For purposes of this
ARTICLE VII, any person who, pursuant to a provision in this Certificate of
Incorporation, exercises or performs any of the powers or duties conferred or
imposed upon the Board of Directors of the Corporation shall be entitled to all
the benefits conferred upon directors and officers of the Corporation (including
without limitation, the right to indemnification and advancement of expenses)
set forth in this ARTICLE VII.
If approved by the Board of Directors, the Corporation may
indemnify its employees and agents in connection with their services in such
capacities upon the same terms and conditions of indemnification available to
the Corporation's directors and officers pursuant to Sections 1 and 2 of this
ARTICLE VII.
The Board of Directors may by resolution or agreement make
further provision for indemnification of directors, officers, employees and
agents of the Corporation.
2. Indemnification In Derivative Actions. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving
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<PAGE>
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, provided that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
3. Indemnification For Expenses In Certain Cases. To the
extent that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this ARTICLE VII, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
4. Procedure. Any indemnification under Sections 1 and 2 of
this ARTICLE VII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such Sections 1 and 2. Such determination shall be made (a) by a majority vote
of the directors who were not parties to such action, suit or proceeding, even
though less than a quorum, or (b) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (c)
by the stockholders.
5. Advances For Expenses. Expenses (including attorneys' fees)
incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall be ultimately
determined that he is not entitled to be indemnified by the Corporation as
authorized in this ARTICLE VII. Such expenses (including attorneys' fees)
incurred by employees and agents may be so paid upon such terms and conditions,
if any, as determined by the Board of Directors.
6. Rights Not-Exclusive. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of this
ARTICLE VII shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
7. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the
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<PAGE>
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this ARTICLE VII.
8. Definition Of Corporation. For the purposes of this ARTICLE
VII, references to "the Corporation" include the Corporation and all constituent
corporations absorbed in a consolidation or merger which, if its existence had
continued would have had the power and authority to indemnify its directors and
officers, as well as the resulting or surviving corporation so that any person
who is or was a director or officer of such a constituent corporation or is or
was serving at the request of such constituent corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this ARTICLE
VII with respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.
9. Survival Of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to this ARTICLE VII shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person. No subsequent amendment of this ARTICLE VII shall diminish the rights
hereunder of any director, officer, employee or agent with respect to any action
taken or claim made prior to such amendment.
ARTICLE VIII
------------
Subject to Subsection F.1(c)(ii) of ARTICLE IV of this
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by the GCL, the Board of Directors of the Corporation is expressly
authorized and empowered to adopt, amend and repeal the bylaws of the
Corporation.
ARTICLE IX
----------
The name and mailing address of the incorporator is as
follows:
Name Mailing Address
---- ---------------
Paul A. Serini 10451 Mill Run Circle
10th Floor
Owings Mills, Maryland 21117
IN WITNESS WHEREOF, I have hereunto set my hand this __ day of
September 1997, and I affirm that the foregoing certificate is my act and deed
and that the facts stated therein are true.
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<PAGE>
/s/ Paul A. Serini
----------------------------
Paul A. Serini, Incorporator
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FORM OF
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is executed as of this
_____ day of March, 1998, by and among DOCTORS HEALTH, INC., a Delaware
corporation ("DOCTORS HEALTH"), and the holders of Class A Common Stock, par
value $.01 per share, of Doctors Health (the "Class A Common Stock") listed on
EXHIBIT A (the "Class A Stockholders") and the holders of equity securities of
Doctors Health listed on EXHIBIT B (the "Named Stockholders") (the Class A
Stockholders and the Named Stockholders are sometimes hereinafter referred to
individually as a "Stockholder" and collectively as the "Stockholders"). As used
in this Agreement, the terms "Stockholder" and "Stockholders" shall include any
successors, permitted assigns, permitted transferees (whether by sale, gift, or
other disposition), heirs, and personal representatives of a Stockholder.
WHEREAS, the Stockholders desire to maintain ownership and control of
Doctors Health among themselves for the purposes of insuring continuity of
management among themselves; and
WHEREAS, the Stockholders and Doctors Health deem it in their best
interests to impose certain restrictions and obligations on persons who become
Class A Stockholders of Doctors Health pursuant to the exercise of options to
purchase Class A Common Stock under the Amended and Restated Omnibus Stock Plan
of Doctors Health, Inc. in order to effectuate the foregoing purposes.
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 Doctors Health's stockholders (or
similar event); (ii) a contribution, consolidation or merger where Doctors
Health is not the survivor; (iii) any sale, exchange or other disposition of
all, or substantially all, of Doctors Health's assets; or (iv) any underwritten
public offering of Doctors Health's securities at an aggregate market valuation
of the Company of at least $150,000,000 with net proceeds to Doctors Health of
at least $35,000,000 after deducting underwriting discounts and commissions and
offering expenses (an "IPO").
"COMMON STOCK" shall mean the shares of Common Stock of
Doctors Health, including the Class A Common Stock, the Class B Common Stock,
and the Class C Common Stock of Doctors Health, Inc., all with par value of $.01
per share.
"DOCTORS HEALTH CERTIFICATE OF INCORPORATION" shall mean the
Certificate of Incorporation of Doctors Health filed on October 10, 1997 with
the State of Delaware.
"FAIR MARKET VALUE" shall mean fair market value of the Class
A Common Stock of Doctors Health as determined by mutual agreement between
Doctors Health and the Class A
<PAGE>
Stockholder with respect to whose Class A Common Stock 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 the mutual
agreement of the Company and such Class A Stockholder.
(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.
2. STOCK, WARRANTS AND OPTIONS COVERED; ADDITIONAL PARTIES.
(a) COVERED SECURITIES. Except as otherwise provided herein,
all of the provisions of this Agreement shall apply to the shares of Stock now
or hereafter held by the Class A Stockholders, 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 Class A
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 beneficial interests held by any
beneficiary in any trust permitted to be a transferee hereunder.
(b) COORDINATION WITH SHAREHOLDERS' AND VOTING AGREEMENT. The
parties acknowledge that the Named Stockholders have entered into and are
subject to the terms and conditions of that certain Shareholders' and Voting
Agreement with Doctors Health dated July 15, 1997 (the "Shareholders' and Voting
Agreement"). The parties agree that the Named Stockholders have entered into
this Agreement solely for the purpose of confirming and enforcing their
respective rights under SECTIONS 5(B)(II), 8, 9, 15 AND 16 of this Agreement and
nothing contained in this Agreement shall be construed as imposing any of the
obligations or restrictions contained in this Agreement on the Named
Stockholders.
3. GENERAL RESTRICTIONS ON TRANSFER.
(a) 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 Class A Stockholder
(each a "Transfer") 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 Class A Stockholder of the Stock or issuance of capital stock by
Doctors Health other than in accordance with this Agreement shall be null and
void, and Doctors Health 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 Class A
Stockholder . The personal representative of a deceased Class A Stockholder
shall automatically be subject to the terms and conditions of this Agreement.
(b) A Class A Stockholder may transfer any and all shares of
Stock held during such Class A Stockholder 's lifetime to any custodian or
trustee for the account of such Class A Stockholder or such Class A Stockholder
's Immediate Family, as hereafter defined. For purposes of this Agreement,
Immediate Family shall mean such Class A Stockholder 's spouse, lineal
descendant, father, mother, brother or sister
2
<PAGE>
4. INVOLUNTARY TRANSFERS.
(a) EVENTS. 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 Class A Stockholder 's Stock is attached or taken in execution,
or (ii) if a Class 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 Class 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
Class A Stockholder makes an assignment for the benefit of creditors, or (v) if
any portion of a Class A Stockholder 's Stock is made subject to a charging
order. If any Class A Stockholder has actual knowledge of an Involuntary
Transfer of his or its Stock, such Class A Stockholder shall give written notice
to such effect to Doctors Health, 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.
(b) PROCEDURES. In the event of any Involuntary Transfer, any
such transferee shall not be deemed a Class A Stockholder unless such transferee
agrees to be subject to the terms of this Stockholder's Agreement; and any Class
A Stockholder who is subject to an Involuntary Transfer shall use his best
efforts to cause any such transferee (the "Involuntary Transferee") to comply
with the procedures set forth in SECTION 5. The Remaining Stockholders (as
defined in SECTION 5(B)(II) below) and Doctors Health shall have the option to
purchase the Stock subject to an Involuntary Transfer in accordance with the
procedures set forth in SECTION 5(b). The purchase price of the Stock in the
circumstance of an Involuntary Transfer shall be determined in accordance with
the provisions of SECTION 6 hereof.
5. VOLUNTARY TRANSFERS OF STOCK.
(a) STOCK RESTRICTED. Each Class A 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.
(b) VOLUNTARY TRANSFERS BY THE HOLDERS OF CLASS A COMMON
STOCK.
(i) OPTION OF DOCTORS HEALTH. Each Class A
Stockholder shall have the right to receive a bona fide offer to purchase
(which it is willing to accept) (a "CLASS A COMMON OFFER") from any independent
third person capable of consummating such a sale of all, but not less than all,
of its Class A Common Stock (the "CLASS A COMMON OFFERED STOCK"). Before
accepting a Class A Common Offer, the Class A Stockholder shall first offer in
writing (the "CLASS A COMMON STOCKHOLDER'S OFFER") to sell the Class A Common
Offered Stock to Doctors Health at the price and on the terms on which such
transferring Class A Common Stockholder proposes to transfer the Class A Common
Offered Stock to the proposed third party transferee. The Class A Common
Stockholder's Offer shall set forth (A) the number of shares of the Class A
Common Offered Stock, (B) the name and address of the proposed transferee, (C)
the amount of consideration to be received by the transferring Class A
Stockholder, and (D) the method of proposed payment. A copy of the Class A
Common Stockholder's Offer shall simultaneously also be sent to the Remaining
Stockholders.
Doctors Health shall have the right to exercise its option to
purchase the Class A Common Offered Stock, for a period of thirty (30) days
following its receipt of the Class A Stockholder's Offer, by notifying such
holder of Class A Common Stock in writing of its intention to purchase at
closing all or any shares of the Class A Common Offered Stock.
3
<PAGE>
(ii) OPTION OF REMAINING STOCKHOLDERS. If Doctors
Health does not accept the Class A Common Stockholder's Offer to purchase all of
the shares of Class A Common Offered Stock within the period of thirty (30) days
provided above in SECTION 5(B)(I), then the holders of Class A Common Stock,
immediately thereafter, shall be deemed to have made an offer (the "FINAL CLASS
A COMMON STOCK OFFER") to sell all of the remaining shares of the Class A Common
Offered Stock (the "REMAINING CLASS A COMMON OFFERED STOCK") to the
non-transferring Class A Stockholders and the Named Stockholders (the "Remaining
Stockholders") at the price and upon the terms provided in the Class A Common
Stockholder's Offer. The Remaining Stockholders shall have the option, for a
period of thirty (30) days after the earlier to occur of (i) expiration of the
thirty (30) day period provided in SECTION 5(B)(I), or (ii) notification by
Doctors Health to the Remaining Stockholders that Doctors Health has elected to
purchase less than all of the shares of Class A Common Offered Stock as provided
in SECTION 5(B)(I), to purchase all of the Remaining Class A Common Offered
Stock, upon written notification to such Class A Stockholder, at the price and
upon the terms provided in the Class A Common Stockholder's Offer.
If more than one Remaining Stockholder desires to purchase the
Remaining Class A Common Offered Stock, such Remaining Class A Common Offered
Stock shall be purchased by them in such proportions as they may agree. In the
absence of agreement, each of the Remaining Stockholders desiring to purchase
the Remaining Class A Common Offered Stock shall be entitled to purchase up to
that number of shares of Remaining Class A Common Offered Stock which is equal
to the product of (A) the quotient obtained by dividing (1) the number of shares
of Common Stock held by such Remaining Stockholder (treating all securities or
indebtedness of Doctors Health convertible into shares of Doctors Health Common
Stock (the "Common Stock Equivalents") held by such Remaining Stockholder as
fully exercised, converted and exchanged) by (2) the aggregate number of shares
of Common Stock treating all Common Stock Equivalents held by all the Remaining
Stockholders as fully exercised, converted and exchanged) held by all of the
Remaining Stockholders multiplied by (B) the number of shares of Remaining Class
A Common Offered Stock. The Remaining Stockholders shall have the right to
exercise their respective options to purchase the Class A Common Offered Stock,
for a period of thirty (30) days following their receipt of the Class A Common
Stockholder's Offer, by notifying the Class A Common Stockholder in writing of
their respective intentions to purchase at closing for the purchase of all or
any shares of the Class A Common Offered Stock.
(iii) TRANSFERS TO THIRD PARTIES. If (A) the holder
of Class A Common Stock elects to transfer all of its shares of Class A Common
Stock; (B) the holder of Class A Common Stock strictly complies with the
provisions of SECTIONS 5(B)(I) AND (II); (C) the Remaining Stockholders and
Doctors Health elect to purchase, in the aggregate, less than all of the shares
of Class A Common Offered Stock; and (D) the holder of Class A Common Stock
complies with the terms of this SECTION 5(B), then all of the unpurchased shares
of Class A Common Offered Stock may be sold by the holder of Class A Common
Stock to the third party named in the Class A Common Stockholder's Offer within
a period of thirty (30) days after the expiration of the thirty (30) day period
provided in SECTION 5(B)(II). Such Class A Common Offered Stock may be
transferred to the third party named in the Class A Common Stockholder's Offer;
provided that (X) such shares are sold at the price and on the terms set forth
in the Class A 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 Doctors
Health, 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.
6. PURCHASE PRICE OF STOCK FOR PURPOSES OF INVOLUNTARY TRANSFERS. The
purchase price for any Involuntary Transfers shall be the Fair Market Value of
the Class A Common Stock.
4
<PAGE>
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.
8. VOTING BY CLASS A STOCKHOLDERS; HOLDBACK AGREEMENT.
(a) SALE OF CLASS A STOCKHOLDER'S STOCK. If any vote, consent,
determination or other action is required or permitted to be made by the Class A
Stockholders and/or by Doctors Health pursuant to the terms of this Agreement in
order to authorize and permit Doctors Health to exercise any of its rights
hereunder, any Class A Stockholder who would, upon exercise of said rights by
Doctors Health, thereby become obligated to sell his Stock, shall cast his vote
and otherwise act, (i) as a Class 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 Class 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 Class A Stockholders and the directors of Doctors Health pursuant to the
terms of this Agreement.
(b) CLASS A DIRECTORS. Each Class A Stockholder who is an
employee of Doctors Health and a party to this Agreement hereby agrees (i) to
vote his shares of Stock to elect Stewart Gold, Alan Kimmel, and Scott Rifkin,
as three of Doctors Health's Class A Common Stock Directors for as long as such
Class A Common Stockholder is an employee of Doctors Health, 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 Doctors Health; provided,
however, that the provisions of SECTION 8(B)(II) hereof shall not apply to
Stewart Gold, Alan Kimmel and Scott Rifkin.
(c) ISSUANCE OF ADDITIONAL SHARES OF STOCK. Each Class A
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 Doctors Health, to
vote as a Director, to cause Doctors Health 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 Doctors Health common stock (the "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 Doctors Health,
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
Doctors Health calculated as of the time of the issuance and after giving effect
thereto;
(3) upon exercise of any warrant or similar stock
purchase right or conversion of any convertible securities;
(4) for the acquisition of another corporation
by Doctors Health by merger, purchase of substantially all of the assets of
such corporation or other reorganization resulting in the ownership by Doctors
Health of not less than fifty percent (50%) of the voting power of such
corporation; and/or
(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
5
<PAGE>
respect to any shares of Stock which have been repurchased by Doctors Health and
are being resold.
(d) HOLDBACK AGREEMENT. Each Class A Stockholder agrees that,
to the extent he or she is at that time an employee of Doctors Health and is
requested in writing by a managing underwriter of an IPO or an underwritten
public offering effected by Doctors Health within three years after an IPO, it
will not transfer any Stock or any other equity security of Doctors Health or
any security convertible into or exchangeable or exercisable for any equity
security of Doctors Health other than as part of such underwritten public
offering) during the time period reasonably requested by the managing
underwriter.
9. COOPERATION WITH CERTAIN TRANSFERS.
(a) GENERAL. The Beacon Group III-Focus Value Fund, L.P.
("Beacon") is the holder of Series D Preferred Stock of Doctors Health. Beacon
and Doctors Health have determined that it is in the best interest of Doctors
Health and all of its stockholders to require cooperation of the Class A
Stockholders with certain transfers of the securities of Doctors Health
(b) COOPERATION. If Beacon, as long as it holds at least (i)
51% or more of the number of shares of Series D Preferred Stock purchased by
Beacon pursuant to the Preferred Stock Purchase Agreement among Doctors Health,
Beacon and certain other parties thereto dated July 15, 1997 or (ii) 5% or more
of the shares of Common Stock of the Doctors Health (the "Transfer Initiator"),
determines to Transfer or exchange (in a business combination or otherwise) in
one or a series of bona fide arms-length transactions (collectively, the
"Transfer Transaction") to an unrelated and unaffiliated third party all of the
shares of Common Stock of Doctors Health and any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock, including, without
limitation, shares of the Preferred Stock of Doctors Health and the Common Stock
issuable upon conversion thereof (the "Converted Stock"), in each case, whether
owned on the date hereof or acquired hereafter by the Transfer Initiator, then
upon 30 days written notice from the Transfer Initiator to the Class A
Stockholder 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 Class A Stockholder, each of the Class A Stockholders 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 Stock in the same
transaction at the closing thereof (and will deliver certificates for all of his
Stock at the closing, free and clear of all liens, claims, or encumbrances), and
such Class A Stockholder shall receive the same consideration per share of Stock
upon consummation of such transaction as is received by the Transfer Initiator
per share of Converted Stock. The provisions of this SECTION 9(B) shall not
apply to (i) any Transfer prior to July 15, 1999, (ii) any Transfer pursuant to
a bona fide underwritten public offering pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, or (iii) any
Transfer by the Transfer Initiator to an affiliate of the Transfer Initiator.
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 10, holders of
Preferred Stock shall have no obligation to vote for any matter which requires
the consent of such Class A Stockholders or of the directors of Doctors Health
elected by them under the Doctors Health Certificate of Incorporation.
6
<PAGE>
11. SEVERABILITY. It is the express intention of the parties that the
agreements contained herein shall have the widest application possible. If any
agreement contained herein is found by a court having jurisdiction to be
unreasonable in scope or character, the agreement shall not be rendered
unenforceable thereby, but the parties shall in good faith negotiate a
modification to the agreement that preserves the essence of the agreement of the
parties contained herein with retroactive effect to render such agreement
reasonable and such agreement shall be enforced as thus modified. If the court
having jurisdiction will not review the agreement, then the parties shall
mutually agree to a revision having an effect 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.
12. ENDORSEMENT OF CERTIFICATE. Upon the execution of this Agreement,
each certificate of Stock of Doctors Health now registered in the name of a
Class A Stockholder and subject hereto shall be endorsed by the Secretary of
Doctors Health as follows:
"This certificate is transferable only upon compliance with
the provisions of a Stockholders Agreement dated March __, 1998, by and among
Doctors Health, Inc. and certain of its stockholders, a copy of which is on file
in the office of the Secretary of Doctors Health and is available upon request
of any stockholder without charge."
All certificates for any shares of Stock hereinafter issued to
Class A Stockholders shall bear the same endorsement, and this Agreement shall
cover all such stock.
13. TERM. Anything contained herein to the contrary notwithstanding,
this Agreement shall terminate, and all rights and obligations shall cease 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 Doctors Health's business; or
(iii) The bankruptcy, liquidation, receivership, or
dissolution of, or assignment for the benefit of creditors by, Doctors Health;
or
(iv) Any Change in Control of Doctors Health; provided,
however, that the provisions of SECTION 8(D).of this Agreement shall survive
termination of this Agreement pursuant to SECTION 13(IV) hereof.
14. 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 Doctors Health records,
and to Doctors Health at Doctors Health'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.
15. 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
Doctors Health 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.
7
<PAGE>
16. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof. This Agreement shall be binding upon, and inure to the benefit of, and
shall be enforceable by, the heirs, successors, assigns, and personal
representatives of the parties hereto. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware 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 Class A
Stockholders agree that he will consent to and approve any amendments of the
Doctors Health Certificate of Incorporation or by-laws of Doctors Health 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
Delaware as now or hereafter enacted. Each Class A Stockholder agrees to vote
his shares of Stock in Doctors Health 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.
17. 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.
18. ADDITIONAL CLASS A STOCKHOLDERS. The parties agree that this
Agreement may be amended for the purpose of subjecting additional holders of
Class A Common Stock upon exercise of options under the Amended and Restated
Omnibus Stock Plan to this Agreement without requiring the parties hereto to
execute such amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this
Stockholders Agreement as an instrument under seal as of the date first above
written.
WITNESS/ATTEST: DOCTORS HEALTH, INC.
By: (SEAL)
- ------------------------ --------------------------
Stewart B. Gold, President
STOCKHOLDERS:
(SEAL)
- ------------------------ ------------------------------
Theresa A. Spoleti
8
<PAGE>
Stewart B. Gold, Scott Rifkin, Alan Kimmel, Medical Holdings Limited
Partnership, St. Joseph Medical Center, Inc., UniversityCare, LLC, Genesis
Health Ventures, Inc. and The Beacon Group III - Focus Value Fund, L.P. enter
into the foregoing Agreement solely for the purpose of enforcing their rights
under SECTIONS 5(B)(II), 8, 9, 15, AND 16 of this Agreement.
___________________________ _______________________(SEAL)
Stewart B. Gold
___________________________ _______________________(SEAL)
Scott Rifkin
___________________________ _______________________(SEAL)
Alan Kimmel
MEDICAL HOLDINGS LIMITED PARTNERSHIP
By: BMGGP, INC., its General Partner
___________________________ By: _______________________(SEAL)
Scott Rifkin, President
ST. JOSEPH MEDICAL CENTER, INC.
___________________________ By: _______________________(SEAL)
UNIVERSITY CARE, LLC.
___________________________ By: _______________________(SEAL)
GENESIS HEALTH VENTURES, INC.
___________________________ By: _______________________(SEAL)
THE BEACON GROUP III -
FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, L.L.C.
By: Focus Value, GP, Inc.
___________________________ By: _______________________(SEAL)
9
<PAGE>
EXHIBIT A
CLASS A STOCKHOLDERS
(AS OF MARCH 10, 1998)
SHARES EMPLOYEE STOCK
NAME OUTSTANDING OPTIONS
---- ----------- -------
Theresa A. Spoleti 40,000 40,000
10
<PAGE>
EXHIBIT B
NAMED STOCKHOLDERS
(AS OF MARCH 10, 1998)
SHARES EMPLOYEE STOCK
NAME OUTSTANDING OPTIONS
---- ----------- -------
Stewart B. Gold 1,200,000 800,000
Scott Rifkin 200,000 400,000
Alan Kimmel 200,000 300,000
St. Joseph Medical Center, Inc. 1,000,000 0
UniversityCare, LLC 438,068 0
Genesis Health Ventures, Inc. 571,428 0
The Beacon Group III - Focus Value 2,075,693 0
Fund, L.P.
Medical Holdings Limited Partnership 4,400,000 0
11
EXHIBIT 5
[ DOCTORS HEALTH LETTERHEAD ]
March 12, 1998
Doctors Health, Inc.
10451 Mill Run Circle
Owings Mills, Maryland 21117
Gentlemen:
I am duly elected and acting Senior Vice President of Doctors Health,
Inc. (the "Corporation") and I have acted as counsel to the Corporation in
connection with the preparation and filing with the Securities and Exchange
Commission of a registration statement on Form S-8 (the "Registration
Statement") registering 1,000,000 shares of Class A Common Stock of the
Corporation, par value $0.01 per share (the "Common Stock") for issuance
pursuant to the Doctors Health, Inc. Amended and Restated Omnibus Stock Plan
(the "Plan").
In this capacity, I have examined (i) the charter and by-laws of the
Corporation, (ii) the corporate proceedings authorizing the issuance of
12,350,000 shares (adjusted to reflect a 2-for-1 stock split effected September
30, 1997) of Common Stock pursuant to the Plan, 1,000,000 of which are being
registered on this Registration Statement, (iii) the Plan, (iv) all resolutions
adopted by the Corporation's Board of Directors relating to the above and other
records and documents that I have deemed necessary for the purpose of this
opinion. I have also examined such other documents, papers, statutes and
authorities as I have deemed necessary to form a basis for this opinion. In my
examination, I have assumed the genuineness of all signatures and the conformity
to original documents of all copies submitted to me. As to various questions of
fact material to my opinion, I have relied on statements and certificates of
officers and representatives of the Corporation and others.
Based upon the foregoing, I am of the opinion that:
1. The Corporation has been duly incorporated and is a validly
existing corporation in good standing under the laws of the
State of Delaware.
2. Upon issuance of shares of Common Stock pursuant to the Plan,
such shares will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to me under Item 5 of this
Registration Statement.
Very truly yours,
/s/ James A. Gast
_____________________
James A. Gast
EXHIBIT 23.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated August 18, 1997,
except for Notes 20 and 21, as to which the date is December 1, 1997, included
in Doctors Health Inc.'s Post-Effective Amendment No. 1 to the Form S-1
Registration Statement filed with the Securities and Exchange Commission on
December 24, 1997, and to all references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
Baltimore, Maryland
March 10, 1998
EXHIBIT 23.2
[LETTERHEAD OF GRANT THORNTON]
CONSENT
We have issued our reports dated October 3, 1996, except for Note 20, which is
now incorporated into the second paragraph of Note 11, the date of which is
January 13, 1997, accompanying the consolidated financial statements and
schedules of Doctors Health, Inc. (formerly Doctors Health System, Inc.)
included in the Annual Report on Form 10-K for the year ended June 30, 1997
which are incorporated by reference in this Registration Statement Form S-8. We
consent to the incorporation by reference in the Registration Statement Form S-8
of the aforementioned reports and to the use of our name as it appears under the
caption "Experts."
/s/ Grant Thornton
Baltimore, Maryland
March 10, 1998
EXHIBIT 24
POWER OF ATTORNEY
The undersigned Officers and Directors of Doctors Health, Inc., a
Delaware corporation (the "Corporation"), hereby constitute and appoint Stewart
B. Gold, John R. Dwyer, Jr., and James A. Gast of Owings Mills, Maryland, and
each of them, the true and lawful agents and attorneys-in-fact of the
undersigned with full power and authority in said agents and attorneys-in-fact,
and in any one or more of them, to sign for the undersigned and in their
respective names as Officers and as Directors of the Corporation, a Registration
Statement on Form S-8 relating to the proposed issuance of shares of Common
Stock and other securities to officers, directors and other employees of the
Corporation and its subsidiaries (or any and all amendments, including
post-effective amendments, to such Registration Statement) and file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and with full power of substitution; hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S><C>
/s/ Stewart B. Gold Chief Executive Officer, President, Director March 11, 1998
- ----------------------------------- (Principal Executive Officer)
Stewart B. Gold
Chairman, Executive Vice President of , 1998
- ----------------------------------- Corporate Development, Director
Scott M. Rifkin, M.D.
/s/ John R. Dwyer, Jr. Chief Financial Officer, Treasurer and March 10, 1998
- ----------------------------------- Director (Principal Financial Officer)
John R. Dwyer, Jr.
/s/ Kyle R. Miller Vice President of Finance March 10, 1998
- ----------------------------------- (Principal Accounting Officer)
Kyle R. Miller
/s/ Alan L. Kimmel, M.D. Executive Vice President, Chief Medical March 11, 1998
- ----------------------------------- Officer and Director
Alan L. Kimmel, M.D.
/s/ Robert A. Barish, M.D. Director March 11, 1998
- -----------------------------------
Robert A. Barish, M.D.
/s/ Richard L. Diamond, M.D. Director February 27, 1998
- -----------------------------------
Richard L. Diamond, M.D.
</TABLE>
-1-
<PAGE>
<TABLE>
<S><C>
/s/ Mark H. Eig, M.D. Director March 2, 1998
- -----------------------------------
Mark H. Eig, M.D.
Director ________, 1998
- -----------------------------------
John W. Ellis
/s/ Albert Herrera, M.D. Director February 27, 1998
- -----------------------------------
Albert Herrera, M.D.
/s/ Robert G. Graw, Jr., M.D. Director March 10, 1998
- -----------------------------------
Robert G. Graw, Jr., M.D.
/s/ Richard R. Howard Director March 11, 1998
- -----------------------------------
Richard R. Howard
/s/ William D. Lamm, M.D. Director March 11, 1998
- -----------------------------------
William D. Lamm, M.D.
Director ________, 1998
- -----------------------------------
Peter J. LoPresti, D.O.
/s/ J. David Nagel, M.D. Director March 11, 1998
- -----------------------------------
J. David Nagel, M.D.
/s/ D. Alexander Rocha, M.D. Director March 3, 1998
- -----------------------------------
D. Alexander Rocha, M.D.
Director ________, 1998
- -----------------------------------
Paul A. Serini
</TABLE>
