STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of January 1, 1998 by and among COASTAL PHYSICIAN GROUP, INC., a Delaware
Corporation ("Coastal"), COASTAL MANAGED HEALTHCARE, INC., a North Carolina
corporation ("CMH" or the "Seller") and DHP HOLDINGS, LLC, a North Carolina
limited liability company ("Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, CMH owns all of the issued and outstanding stock of Doctors Health
Plan, Inc., a North Carolina corporation ("DHP"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
CMH is selling and the Purchaser is purchasing all of the issued and outstanding
stock of DHP (the "DHP Stock"), all pursuant to the terms and conditions more
fully set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.1 Purchase and Sale of DHP Stock. Subject to the terms and
conditions contained herein, at a Closing taking place concurrently with the
execution and delivery of this Agreement, the Purchaser is purchasing from CMH
and CMH is selling, assigning and transferring to the Purchaser, the DHP Stock
which is all of the issued and outstanding capital stock of DHP.
Section 1.2 Closing Date. The closing of this transaction (the "Closing")
shall be held at the offices of Xxxxx & Xxx Xxxxx, PLLC, 0000 Xxxx Xxxx Xxxxxx,
Xxxxx 000, Xxxxxx, Xxxxx Xxxxxxxx 00000, or such other place as the parties may
agree on or before March 4, 1998 or such other time as the parties may agree;
provided, the transactions contemplated herein shall be effective as of 12:01
a.m. on January 1, 1998 (the "Effective Date").
Section 1.3 Purchase Price and Payment of Purchase Price. The purchase
price, subject to adjustments described below, to be paid by Purchaser (the
"Purchase Price") will be an amount equal to $5,000,000. The Purchaser will pay
the Purchase Price at Closing in cash or immediately available funds; provided,
however, Purchaser shall have the right to elect to pay the Purchase Price in
the form of a promissory note in the amount of $5,000,000 (the "Note") due and
payable within ten (10) days from the Closing Date. The Promissory Note will
bear interest after default at the per annum rate of twelve percent (12%) until
paid. In addition, in the event the Note is not paid in full within the earlier
of ninety (90) days from the date hereof or forty-five days after Coastal gives
Purchaser notice under Section 5.6 that it intends to accept a price below the
Strike Price (as defined in Section 5.6), Purchaser agrees to provide collateral
to secure the Note that is determined to be adequate by the Board of Directors
of Coastal, and Purchaser agrees to execute and deliver any security agreements,
deeds of trust, pledge agreements, financing statements and other documentation
necessary to evidence or perfect a security interest in such collateral. The
form of Note is attached hereto as Exhibit A. Seller may be entitled to receive
additional amounts under Section 5.6, which amounts shall be treated as an
adjustment to the Purchase Price.
Section 1.4 Post Effective Date Cooperation. The parties acknowledge that
after the Effective Date, cash may be received by one party but belong to
another party and/or trade payables may be paid by one party yet be the
responsibility of another party. The parties agree to cooperate to reconcile in
a timely manner all post Effective Date transactions. Upon such reconciliation,
any party owing money to another party shall pay the amount owed within thirty
(30) days of said reconciliation.
Section 1.5 Responsibility for Tax Liability. Seller shall be responsible
for and shall indemnify Purchaser from, against and in respect of any liability
for taxes imposed on DHP with respect to any taxable period,
or portion thereof, ending on or prior to or which includes the date immediately
prior to the Effective Date (including any liability under Section 1.1502-6 of
the Treasury Regulations or similar provisions of state law). Purchaser shall be
responsible for and shall indemnify Seller from, against and in respect of any
liability for taxes imposed on DHP with respect to any taxable period, or
portion thereof, for which Seller is not liable to Purchaser pursuant to the
terms of the immediately preceding sentence (other than any liability under
Section 1.1502-6 of the Treasury Regulations or similar provision of state law).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CMH AND COASTAL
In order to induce the Purchaser to enter into this Agreement and the
transactions contemplated hereby, CMH and Coastal hereby represent and warrant
to the Purchaser as follows:
Section 2.1 Corporate Organization and Authority. CMH is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina, with full corporate power and authority to conduct its business
as now conducted, own its assets, own or lease and operate its properties, and
enter into and perform its obligations under this Agreement. This Agreement
constitutes, and all assignments, agreements and other instruments and documents
to be executed and delivered by CMH in connection with this Agreement will
constitute, CMH's legal, valid and binding obligations, enforceable against CMH
in accordance with their respective terms.
CMH, by all appropriate corporate action, has duly authorized the execution
and delivery of this Agreement, the documents of transfer and assignment
contemplated hereby in consummation of all the transactions contemplated herein
and the performance of all obligations of CMH pursuant to this Agreement.
Section 2.2 Title to Stock of DHP. Except as disclosed on Schedule 2.2, CMH
is the true and lawful beneficial and record owner of all the DHP Stock and has
good and marketable title thereto, free and clear of claims, pledges, liens,
security interests, charges or other encumbrances. Subject to obtaining all
required consents disclosed on Schedule 2.14, CMH has full right and power and
authority to sell, transfer and deliver the DHP Stock. Upon delivery of the DHP
Stock as contemplated in this Agreement, CMH will transfer to the Purchaser
valid and marketable title thereto including all voting and other rights to the
DHP Stock free and clear of all claims, pledges, liens, security interests,
charges, or other encumbrances.
Section 2.3 Financial Statements. The unaudited financial statements of DHP
are attached hereto as Exhibit C and have been prepared by management. Since the
date of the financial statements, management believes that DHP has incurred
continuing substantial operating losses. DHP has been cited by the North
Carolina Department of Insurance ("NCDOI") for numerous violations of
regulations with respect to its operations and has been notified that a fine
which is likely to be substantial will be levied and will be payable by DHP. As
a result of the operational losses of DHP prior to the closing, management
believes that DHP does not have the statutory minimum capital and surplus
required by the laws of the State of North Carolina or the NCDOI in order to
maintain its license to operate a health maintenance organization in good
standing. Management believes that substantial capital infusions will be
required to be made to DHP in order to pay the fine levied by the NCDOI,
maintain statutory minimum capital and surplus, fund ongoing operating losses
and meet other capital requirements that will be imposed on DHP by the NCDOI as
a condition to continuing operations. DHP has experienced significant employee
attrition and turnover over the past twelve to eighteen months, including the
resignation of the President and Chief Executive Officer in January, 1998. In
addition, other officers and directors have resigned. Additional matters
regarding DHP and its financial statements are disclosed on Schedule 2.14. Other
than as set forth above and as disclosed on Schedule 2.14, Coastal and CMH make
no representations regarding the financial condition, business or affairs of
DHP.
Section 2.4 No Subsidiaries. DHP does not own, either directly or
indirectly, or have any investment in, own, or otherwise control, any
corporation or other entity, or is a party to any partnership agreement, joint
venture, or similar agreement.
Section 2.5 Other Business Names. Other than as disclosed on Schedule 2.5,
DHP and its predecessors and any companies acquired by or merged into them have
not used any other business names.
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Section 2.6 Sites. Except as disclosed on Schedule 2.14, DHP has complied
in all material respects with all municipal, state and federal statutes,
ordinances, rules and regulations applicable to its respective business,
included but not limited to, zoning, building, environmental and occupational,
safety and health regulations.
Section 2.7 Leases. Schedule 2.7 contains an accurate and complete list of
all space leases with respect to space leased by DHP. Other than as disclosed on
Schedule 2.7, DHP is not in default under any lease or subject to obtaining
necessary consents nor will they be in default as a result of the execution of
this Agreement or closing of the transactions contemplated hereby.
Section 2.8 Tangible Personal Property. Schedule 2.8 contains an accurate
and complete list of all equipment leases and equipment leased by DHP. DHP is
not in default under any such equipment leases and is not aware of any fact
which, with notice and/or passage of time, would constitute such a default.
Section 2.9 Intangible Personal Properties; Computer Programs. DHP has set
forth a list of any and all franchises or licenses, any registered trademarks,
trademark applications, service marks, copyrights, trade names, formulations,
customer lists and computer programs held or used by DHP on Schedule 2.9. Other
than as set forth on Schedule 2.14, neither Coastal, CMH or DHP have received
written notice of any claims or demands with respect to such items of intangible
personal property and, to Coastal's, CMH's and DHP's best knowledge, there are
no claims or demands against CMH or DHP with respect to any of such items of
intangible personal property. No proceedings have been instituted, or are
pending against Coastal, CMH or DHP, or to the knowledge of Coastal, CMH or DHP,
have been threatened against CMH or DHP to challenge the rights of CMH or DHP
with respect to any such assets. Neither CMH or DHP have received written notice
of any claims or demands relating to their right to use all trade names, trade
secrets, patient records and patient lists which they have used or which they
are now using in connection with their respective businesses. Each of CMH or DHP
have the unrestricted right to use, free from any rights or claims of others,
all trade names, trade secrets, patient records and patient lists which they
have used or which they are now using in connection with their respective
businesses.
Section 2.10 Assets. Except as set forth on Schedule 2.10, as of the
Closing Date each of CMH and DHP have good and marketable title in and to all of
their respective assets, which property is free and clear of any security
interests, consignments, liens, judgments, encumbrances, restrictions, or claims
of any kind, other than as expressly provided in this Agreement.
Section 2.11 Current Employees and Employment Practices. All employees of
DHP (other than those listed on the attached Schedule 2.11(a) as having
employment agreements) are employees at will who may be terminated by DHP at any
time, with or without cause, with no obligation to make any payment other than
salary and wages through the date of termination, plus any notice period, and
severance payments in accordance with DHP's standard corporate policy. Except as
described on Schedule 2.11(b), no employment discrimination or unfair labor
practice, charge or complaint against DHP has been filed, nor to the knowledge
of CMH or DHP, threatened to be filed with any court, agency or other entity
having jurisdiction over DHP. Other than as disclosed on Schedule 2.11(b), to
the knowledge of CMH and DHP, DHP has not been threatened by any former employee
with any suit alleging wrongful termination or other discriminatory wrongful or
tortuous conduct in connection with the employment relationship. Schedule
2.11(a) attached hereto and made a part hereof lists all employment agreements
of DHP. None of the employees of DHP are represented by any labor organization,
nor to the knowledge of CMH or DHP is there currently any union organizing
activities with respect to such employees, nor has there been any such
organizing activity within the past three years. DHP has not engaged in any
collective bargaining or similar agreement with any labor organization.
Section 2.12 ERISA. All "employee benefit plans," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by DHP are in compliance with all
applicable provisions of ERISA and the Internal Revenue Code of 1986, as
amended, (the "Code"), and DHP does not have any liabilities or obligations with
respect to any such employee benefit plan, whether or not accrued, contingent or
otherwise, except for instances of noncompliance or liabilities or obligations
that would not, individually or in the aggregate, have a material adverse effect
on the business of DHP. Other than as specified in any employment agreements
listed in Schedule 2.11(a), no employee of DHP will be entitled to any
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additional benefits or any acceleration of the time of payment or vesting of any
benefits under any employee incentive or benefit plan, program or arrangement as
a result of the transactions contemplated by this Agreement, either alone or in
combination with another event. DHP does not separately maintain any plans or
other compensation arrangements which provide deferred or incentive compensation
or severance benefits.
Section 2.13 Insurance. DHP shall deliver prior to closing copies of the
originals of any and all insurance policies which DHP has in effect covering
itself or its employees, officers or directors, including error and omissions
policies. DHP has had general liability insurance and errors and omissions
liability insurance policies in full force and effect from the date DHP was
formed through the Closing Date as part of the coverage afforded under a policy
written to Coastal. The insurance coverage from Allianz Life Insurance Company
of North America for coverage related to insolvency of DHP was scheduled for
renewal on January 1, 1998, but the NCDOI has held up the issuance of the policy
due to the department's efforts to have certain policy language modified.
Section 2.14 Compliance with Applicable Laws. Except as set forth in
Section 2.3 and on Schedule 2.14, DHP is in compliance in all material respects
with all federal, state, county and municipal laws, ordinances, regulations,
judgments, orders or decrees applicable to the conduct of its business or to the
assets owned, used, or occupied by DHP, and has not received notice or advice to
the contrary. Except as set forth on Schedule 2.14, neither this Agreement nor
the consummation of the transactions contemplated herein will (a) violate an
order, writ, injunction, statute, rule or regulation applicable to DHP or (b)
require the consent, approval, authorization or permission of, or the filing
with or the notification of any federal, state or local government agency.
Section 2.15 Environmental and Medical Waste Compliance.
(a) DHP is not in violation of any federal, state or local laws, statutes,
codes, ordinances, rules, regulations, permits or orders relating to or
addressing the environment, health, medical waste or safety (collectively,
"Environmental Laws"), which shall include, but not be limited to, the use,
handling or disposal of or the record keeping, notification and recording
requirements respecting any pollutant, hazardous substance, radioactive
substance, toxic substance, solid waste, hazardous waste, medical waste,
radioactive waste, special waste, petroleum or petroleum derived substance or
waste, asbestos, or any hazardous or toxic constituent thereof (collectively
"Hazardous Substances") or work place or worker safety and health, nor have they
received any written notices alleging that they are in violation of any such
Environmental Laws; nor are they subject to any administrative or judicial
proceeding alleging any violation of any such Environmental Laws, federal, state
or local laws, statutes, codes, ordinances, rules, regulations, permits relating
to the environment, health, medical waste or safety.
(b) There is no pending lawsuit or administrative proceeding or, to CMH's
or DHP's knowledge, threatened claim alleging that DHP is liable under any
Environmental Law, including, without limitation, any Environmental Law related
to the on-site or off-site disposal of Hazardous Substances. DHP has not
received written notice from any person, including but not limited to any
federal, state, or local governmental agency, alleging that DHP is liable under
any applicable Environmental Law, including without limitation, any
Environmental Law related to the on-site or off-site disposal of Hazardous
Substances.
(c) To CMH's and DHP's knowledge, there have been no releases, spills or
discharges of Hazardous Substances on or underneath any of the real property
leased by DHP and DHP has not disposed of Hazardous Substances on, at or under
such properties.
Section 2.16 Taxes. No assessments or additional tax liabilities (including
all federal, state and local taxes, charges, penalties and interest) have been
proposed or to the best of CMH and DHP's knowledge threatened against DHP or any
of its assets, and, except as disclosed on Schedule 2.16, none of Coastal, CMH
or DHP has executed any waiver of the statute of limitations on the assessment
or collection of such tax liabilities. There are no federal, state or local tax
liens upon any of DHP's assets other than inchoate liens for taxes not yet due
and payable. There are no past, pending or to CMH or DHP's knowledge, threatened
audits against DHP, except that Coastal is subject to a federal income tax
examination for 1992 through and including 1996 (DHP was not operating and was
not part of the consolidated returns of Coastal for 1992 and 1993). Except as
set forth on Schedule 2.16, all tax returns for DHP have been timely filed and
are complete and accurate. All returns, declarations, reports, estimates,
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information returns and statements ("Returns") required to be filed under any
federal, state, local or foreign authority by Coastal, CMH, DHP or the
affiliated, combined or unitary group of which any such corporation is or was a
member have been filed and were in all material respects (and, as to Returns not
yet due and filed on the date hereof, will be) true, complete, correct and filed
on a timely basis. All taxes due and owing or required to be withheld or
collected by CMH and DHP have been fully paid and CMH and DHP have adequate
reserves to pay all taxes not yet due, including any taxes resulting from the
transactions contemplated hereunder. Coastal has included DHP as a member of its
consolidated group for federal income tax purposes for all taxable years in
which DHP was properly so includible and will include DHP as a member of its
consolidated group for the taxable period beginning January 1, 1998 and ending
on the Closing Date.
Except as may be required by the Internal Revenue Service (or state taxing
authority) to clearly reflect the income or loss of Coastal or any members of
its consolidated group, Coastal will not take any action or fail to take any
action that could have the effect of reducing the amount of any net operating
loss or other tax attribute attributable to DHP pursuant to the Code or any
similar law of any other taxing jurisdiction, including, without limitation, the
filing of any amended return or the reattribution of any net operating losses or
similar items from DHP, or any affiliate of Coastal under Treas. Reg. Section
1.1502-20 or any similar law of any other taxing jurisdiction. If the Coastal
"consolidated group" is subject to a "consolidated section 382 limitation" as a
result of transactions prior to those contemplated in this Agreement, Coastal
will file an election under Treas. Reg. Section 1.1502-95T(c) apportioning to
DHP an amount of the "consolidated section 382 limitation" of the Coastal
"consolidated group" equal to the lesser of (a) the sum of (i) the product of
the "consolidated section 382 limitation" of the Coastal "consolidated group"
and the DHP Percentage (as defined herein) plus (ii) the net operating loss
incurred for tax purposes by the Coastal consolidated group subsequent to the
event triggering the consolidated section 382 limitation multiplied by the DHP
Percentage (as defined herein) multiplied by the long term tax-exempt rate in
effect as of the Closing Date, and (b) the Purchase Price multiplied by the
long-term tax-exempt rate in effect as of Closing Date. The " DHP Percentage"
shall mean Ten Percent (10%) multiplied by a fraction, the numerator or which is
the Purchase Price (as adjusted pursuant to this Agreement) and the denominator
of which is $8,714,000. Such election will be timely and properly filed under
Treas. Reg. Section 1.1502-95T(e). For purposes of this Section 2.16, the term
"net operating loss" shall have the meaning ascribed to such term in section 172
of the Code, and the terms "consolidated section 382 limitation" and
"consolidated group" shall have the meaning ascribed to such terms in the
Treasury Regulations to Section 1502 of the Code.
Section 2.17 Litigation. Except as set forth on Schedule 2.17, there are no
actions, suits or proceedings pending or to their knowledge threatened against
CMH or DHP which materially affect the ability of CMH to perform under this
Agreement.
Section 2.18 Jurisdictions Doing Business. Attached hereto as Schedule 2.18
is a complete list of all jurisdictions in which DHP has done business as well
as any and all trade names or other names they have used in those jurisdictions.
DHP is duly qualified or registered to do business as a foreign corporation and
are in good standing in each jurisdiction in which the character of the business
conducted by it or the location of the properties owned or leased by it makes
such qualification necessary and where the failure to so qualify would have a
material adverse effect upon its respective business.
ARTICLE III
LIMITATIONS ON REPRESENTATIONS AND WARRANTIES
Section 3.1 Limitation on Representations and Warranties. The Seller shall
not be deemed to have made to Purchaser any representation or warranty other
than those expressly made by the Seller in Article II hereof. Without limiting
the generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by the Seller in Article II hereof, Seller
makes no representation or warranty to Purchaser with respect to:
(a) any projections, estimates, or budgets heretofore delivered to or made
available to Purchaser of future revenues, expenses or expenditures or future
results of operations; or
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(b) except as expressly covered by a representation and warranty contained
in Article II hereof, any other information or documents (financial or
otherwise) made available to Purchaser or its counsel, accountants or advisors
with respect to DHP; notwithstanding the foregoing, the Seller shall be liable
if Seller has knowingly furnished any other information or documents to
Purchaser which is materially incomplete or materially false.
Section 3.2 Due Diligence Investigation. Purchaser acknowledges that:
(a) it has had the opportunity to visit with DHP and meet with
representatives of DHP to discuss the business and the assets, liabilities,
financial condition, cash flow and operations of the business; and
(b) all materials and information requested by Purchaser have been provided
to Purchaser to Purchaser's reasonable satisfaction.
Purchaser acknowledges that it has made its own independent examination,
investigation, analysis and evaluation DHP. Purchaser acknowledges that it has
had full and complete access to all of the books, records and assets of Seller
and has had the opportunity to personally inspect the assets, operations and
talk with the personnel employed by DHP to the extent it has desired to do so
with respect to this transaction.
Purchaser acknowledges that it has undertaken such due diligence (including
a review of the assets, liabilities, books, records and contracts of DHP) as
Purchaser deems adequate, including that described above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
In order to induce the Seller to enter into this Agreement and the
transactions contemplated hereby, Purchaser hereby represents and warrants to
Seller as follows:
Section 4.1 Company Organization and Authority. Purchaser is a limited
liability company, validly existing and in good standing under the laws of the
State of North Carolina, with full power and authority to conduct its business
as now conducted, own its assets, own or lease and operate its properties, and
enter into and perform its obligations under this Agreement. This Agreement
constitutes, and all agreements and other instruments and documents to be
executed and delivered by Purchaser will constitute, Purchaser's legal, valid
and binding obligations, enforceable against Purchaser in accordance with their
respective terms.
Purchaser, by all appropriate limited liability company action, has duly
authorized the execution and delivery of this Agreement, the documents of
transfer and assignment contemplated hereby and consummation of all the
transactions contemplated herein and the performance of all obligations of
Purchaser pursuant to this Agreement.
ARTICLE V
COVENANTS AND AGREEMENTS OF SELLER AND PURCHASER
Section 5.1 Assignment of Leases. To the extent any real estate leases for
facilities utilized by DHP or equipment leases for equipment used by DHP are not
currently in the name of DHP, at the Closing such leases shall be assigned to
and assumed by Purchaser, and the Seller and Purchaser agree to cooperate to
obtain releases of the Seller, Coastal or any affiliates of Coastal for
liability in connection with such leases. All rent and any pass through expenses
payable by the tenant under any such leases shall be prorated as of the
Effective Date between the Seller and Purchaser. Security deposits on all real
estate and equipment leases shall remain on deposit pursuant to the leases and,
to the extent not currently held in the name of DHP shall be transferred to
Purchaser or DHP at Closing. Any expenses chargeable to the tenant or lessee
under such leases (such as taxes, insurance and maintenance) shall be prorated
as of the Effective Date and adjusted between the Purchaser and the Seller.
Section 5.2 Accounting Services; Cooperation of Parties. Purchaser shall be
entitled to continue to have access to and utilize the accounting and general
ledger systems of Coastal including use of hardware and related software through
the end of 1998 for no charge other than reimbursement of out of pocket costs,
including
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telecommunications expenses. The out-of-pocket costs shall be billed by Coastal
to Purchaser monthly, and Purchaser shall timely pay said invoices. Coastal
shall not be obligated to provide any special programming or support services to
Purchaser in connection with Purchaser's use of these systems. Coastal shall not
be obligated to continue to use the present accounting systems through 1998 and
Coastal will not be in breach of this Agreement if it discontinues use of the
present systems or modifies them so as to make continued access and utilization
by Purchaser impractical; provided, in such event, Coastal shall provide
Purchaser with at least ninety (90) days advance notice of any change in its
present systems which will make continued access and utilization by Purchaser
impractical and Coastal shall assist Purchaser in the transition to another
system.
In consideration of the aforesaid, Purchaser will assist Coastal and the
Seller in the production of information for the preparation of financial
statements and tax returns of the Seller.
Section 5.3 Employees. For a transition period through and including March
31, 1998, the employees of DHP will continue to participate in all Coastal
sponsored benefit plans in which they participated immediately prior to the
Closing, and will be paid through the Coastal master payroll services. The
Purchaser will offer employment to all current employees of DHP at their current
rate of pay, although Purchaser shall not be obligated to employ any such
persons for any specific length of time. Purchaser will be obligated to pay to
Coastal all direct costs of the payroll (salary, bonus, overtime, shift
differential) paid by Coastal during the transition period, plus 17.5% to cover
the cost of employee benefits and payroll processing and benefit administration.
The Purchaser shall remit these amounts to Coastal immediately prior to each
payroll period.
Section 5.4 Insurance. The Seller shall bear the risk of loss from fire or
other casualty through the Closing Date. In the event of any fire or casualty
through the Closing Date causing any material loss of DHP's assets, Purchaser
shall have the right to terminate this Agreement and all of Purchaser's
obligations hereunder. Upon such termination, CMH will reimburse Purchaser for
Purchaser's actual out-of-pocket expenses (up to a maximum of $50,000) in
connection with the negotiation and preparation of this Agreement and in
connection with advice relating to the transactions contemplated hereby,
provided that Purchaser shall provide reasonable documentation of such expenses.
Coastal will exercise reasonable efforts to cause the businesses being
purchased by Purchaser to be covered under Coastal's insurance policies through
March 31, 1998 with respect to (i) general liability insurance and (ii) fire and
casualty insurance. Coastal will xxxx Purchaser for the incremental cost of such
insurance and Purchaser shall promptly pay such costs. Such insurance shall be
subject to such terms, conditions, limitations and exclusions as Coastal's
insurers may impose.
Section 5.5 Reserved.
Section 5.6 Marketing of DHP. For a period of twelve (12) months following
the Closing, Coastal shall have the right to market DHP for sale. During this
period, Purchaser agrees that it will not do anything to impede the right of
Coastal to market DHP; provided that Purchaser may bring in minority investors
to DHP so long as Xxxxxx X. Xxxxx, M.D. or his affiliates continue to retain
control of DHP, and further provided that this sentence shall not require
Purchaser to maintain any particular level of funding of DHP operations or
prevent Purchaser from selling DHP for a price less than the Strike Price
(defined below) during the period when Coastal has a right to market DHP.
Following the Closing, the parties agree to undertake an effort to market DHP
for sale to a third party purchaser. The timing and logistics of such a sale
shall be discussed and agreed to by the parties. Coastal has previously entered
into an agreement with Advest, Inc. contemplating the marketing and sale of DHP
following the Closing. Purchaser agrees to give Coastal and its representatives
(including investment bankers, accountants and legal counsel) full and complete
access to the books, records, facilities and personnel of DHP and full
cooperation that in either case is necessary or appropriate to market DHP for
sale. Such access shall also be granted to potential purchasers for due
diligence purposes (subject to the execution of appropriate and customary
confidentiality agreements). In the event that Coastal or Purchaser locates a
third party purchaser for DHP during this period at a price that exceeds the
Strike Price, then Coastal may elect to have the sale take place; provided that
if the Note is outstanding Coastal may elect to sell for a price below the
Strike Price if either (i) the offer to purchase is made ninety (90) days or
more after the date hereof and Purchaser has defaulted in its obligation to
secure the Note by posting adequate collateral in accordance with Section 1.3 or
(ii) the offer to purchase is made within ninety (90) days of the date hereof,
Coastal has given notice to the Purchaser it intends to accept the
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offer, and Purchaser fails to pay the Note in full or post adequate collateral
in accordance with Section 1.3 by the earlier of (x) forty-five (45) days after
such notice or (y) ninety (90) days after the date hereof. If Coastal elects to
sell, Purchaser shall have the right to pay an amount to Coastal that equals the
amount that would have been received by Coastal hereunder as a result of a sale
to such third party purchaser or to agree to consummate a closing and sale to
such third party purchaser. If Purchaser elects to pay such amount to Coastal,
the right to market under this Section 5.6 shall terminate upon such payment. In
addition, if a definitive agreement with a third party purchaser is not entered
into within the twelve (12) month period, the right to market under this Section
5.6 shall terminate.
The following definitions shall apply for purposes of this Section 5.6:
(i) "Purchaser's Base Cost" shall be an amount equal to (i) the
purchase price Purchaser paid for the DHP Stock pursuant to this Agreement
plus (ii) Purchaser's out-of-pocket costs relating to the acquisition and
financing of the DHP Stock and the operations of the business being
acquired, including interest and finance fees relating thereto plus (iii)
any additional capital contributed to DHP after March 1, 1998 and any
additional capital contributed to finance the operation of DHP, minus (iv)
the amount of any distributions in the nature of dividends, redemption of
capital stock or similar payments made to shareholders of DHP.
(ii) "Purchaser's Total Cost" shall be an amount equal to Purchaser's
Base Cost plus an amount calculated to be a twelve percent (12%) per annum
return on the contributions, payments or costs that make up the Purchaser's
Base Cost, taking into account any reduction in the outstanding amount as a
result of the receipt of distributions, dividends or net proceeds by
Purchaser.
(iii) "Seller's Selling Expenses" shall be an amount equal to the
investment banker fees and expenses paid by Seller or Coastal in connection
with the sale of the DHP Stock to Purchaser.
(iv) "Marketing Expenses" shall be the out-of-pocket costs and
expenses of Coastal and Purchaser incurred or reasonably expected to be
incurred in connection with the sale of DHP to a third party purchaser (or
incurred in preparing for such sale), including without limitation
investment banker fees and expenses.
(v) "Strike Price" shall be an amount equal to Purchaser's Total Cost
plus Marketing Expenses.
Upon a sale to a third party, the parties agree to distribute the proceeds
of sale as follows:
(i) If the third party purchaser is located and a definitive agreement
entered into before the earlier of (A) the date thirty days from the date
of closing or (B) the date by which Purchaser has contributed at least
$2,000,000 to the capital of DHP, then all Marketing Expenses shall be
paid, Purchaser's Total Cost shall be paid to Purchaser, and all remaining
proceeds of the sale shall be paid to Coastal.
(ii) For all sales, Marketing Expenses shall first be paid or
reimbursed. The remaining proceeds shall be paid as follows:
(A) Purchaser shall be entitled to receive the greater of (A)
Purchaser's Total Cost or (B) the amount equal to Purchaser's Base
Cost plus fifty percent (50%) of the difference between (x) the amount
of the remaining proceeds less Seller's Selling Expenses minus (y)
Purchaser's Base Cost.
(B) Any portion of the sales proceeds not paid as Marketing
Expenses or paid to Purchaser under (A) above shall be paid to
Coastal.
In the event that the Note is not paid in full at the time of the sale or
if any cash advances or loans made by Coastal or CMH subsequent to February 1,
1998 remain outstanding, the outstanding amounts of such obligations (including
accrued but unpaid interest thereon) shall be paid directly to Coastal at
closing out of the proceeds Purchaser would otherwise receive. If the Note is
outstanding at the time of the sale and the sale is for less than the Strike
Price,
8
then the proceeds of the sale shall be paid in the following order to the extent
available: All Marketing Expenses shall be paid, then the Note shall be paid in
full, then any remaining portion of shall be applied to Purchaser's Total Cost.
If there is income tax liability to Purchaser arising from the receipt by
Seller or Coastal of the amounts Seller and/or Coastal are is entitled to
receive under this Section, Coastal agrees to indemnify and hold harmless
Purchaser from any such income tax liability (grossed up to account for the tax
liabilities associated with such indemnification).
The parties acknowledge that any subsequent transfer of DHP Stock or
substantially all of its assets will require the consent and approval of the
NCDOI and the South Carolina Department of Insurance.
Section 5.7 Financial Information. For a period of twelve (12) months
following the Closing, or so long as Coastal has the right to market DHP,
Purchaser shall cause DHP to deliver monthly financial statements and reports to
Coastal and shall provide such other information concerning the financial
condition, business operations and prospects of DHP as Coastal may reasonably
request.
Section 5.8 Release of Xxxxx from Non-Compete. As part of the Closing,
Coastal and Xx. Xxxxxx X. Xxxxx agree to enter into the Partial Release of
Non-Compete Agreement attached hereto as Exhibit B.
Section 5.9 Non-Compete Agreement of Coastal. In consideration of the
transactions provided for in this Agreement, Coastal and Seller agree that
during the one year period following the Closing Date (as defined below),
neither they nor any of their subsidiaries will engage in the business of
providing health maintenance organization or similar services in (i) the State
of North Carolina and (ii) those service areas in the State of South Carolina
served by DHP as of the Effective Date.
Section 5.10 Use of DHP. Coastal and its affiliates currently offer their
employees the option of using DHP for the employees' health plan. Coastal and
its affiliates agree to continue to offer DHP as an option to their employees
and as part of their employer sponsored health insurance for one (1) year
following the Closing. Coastal and its affiliates further agree not to offer to
their employees any other health maintenance organization, preferred provider
organization or similar organizations in (i) the State of North Carolina and
(ii) those service areas in the State of South Carolina served by DHP for a
period of one (1) year following the Closing.
Section 5.11 Payment of Fines and Penalties. In the event the NCDOI or
South Carolina Department of Insurance or other regulatory authorities levy any
fines or penalties on DHP for operations prior to the Closing Date other than
the fine disclosed in Schedule 2.14, Seller will pay such fines and penalties
and indemnify and hold harmless Purchaser and DHP against any such fines and
penalties.
ARTICLE VI
DELIVERIES OF SELLER AT CLOSING
The Seller shall deliver the following at the Closing:
Section 6.1 Stock Certificates. CMH will deliver to the Purchaser duly
endorsed stock transfer powers and certificate(s) with respect to the DHP Stock.
Section 6.2 Consents and Approvals. CMH shall have obtained all consents
and approvals required for the transfer of the DHP Stock to the Purchaser.
Section 6.3 Seller's Documents. The Seller shall have caused to be
delivered to Purchaser, at the Closing, the following:
(a) Good Standing Certificates. Good standing certificates issued by the
appropriate official of the states of incorporation of DHP and CMH;
(b) Articles of Incorporation and Bylaws. DHP shall have delivered to
Purchaser a true and complete copy of its Articles of Incorporation and Bylaws;
9
(c) Corporate Resolutions. True and correct copies of resolutions of the
board of directors of CMH authorizing the execution, delivery and performance of
this Agreement and the transactions contemplated hereby; and
(d) Assignment of Leases. Assignments of leases as provided in Section 5.1.
Section 6.4 Other Assurances. The Seller shall have delivered to the
Purchaser such other and further certificates, assurances and documents as
Purchaser may reasonably request in order to evidence the accuracy of the
representations and warranties made pursuant to Articles II, the performance of
covenants and agreements to be performed pursuant to Article V at or prior to
the Closing, and the fulfillment of the conditions to Purchaser's obligations.
ARTICLE VII
DELIVERIES OF PURCHASER AT CLOSING
The Purchaser shall deliver the following at Closing:
Section 7.1 Payment of Purchase Price. The Purchaser shall have paid the
Purchase Price in the manner described in Section 1.3 hereof. If the Purchaser
elects to pay the Purchase Price by assumption of debt in an amount equal to the
Purchase Price, the Purchaser shall provide a written release from the
lender(s), releasing Coastal and all affiliates from the debt in the amount of
the Purchase Price.
Section 7.2 Purchaser's Documents. Purchaser shall have caused to be
delivered to Seller, at or before the Closing, the following:
(a) Good Standing Certificate. Purchaser shall have delivered to Seller a
good standing certificate issued by the State in which Purchaser is organized.
(b) Company Resolutions. True and complete copies of resolutions of the
Board of Directors of the Purchaser authorizing the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
Section 7.3 Other Assurances. The Purchaser shall have delivered to the
Seller such other and further certificates, assurances and documents as Seller
may reasonably request in order to evidence the accuracy of the representations
and warranties made pursuant to Article IV, and, the performance of covenants
and agreements to be performed pursuant to Article V at or prior to the Closing,
and the fulfillment of the conditions to Seller's obligations.
ARTICLE VIII
INDEMNIFICATION
In addition to the indemnities included elsewhere in this Agreement, the
parties hereto agree to indemnify and hold each other harmless as follows:
Section 8.1 Indemnification by the Seller. The Seller agrees to indemnify
and hold the Purchaser harmless at all times after the date of this Agreement
from, against and in respect of:
(a) Any and all loss, liability, damage or deficiency resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenants or
agreements on the part of the Seller contained herein or in any certificate or
document furnished by the Seller pursuant hereto and any loss or damage
resulting from any claims, litigation, actions, suits, proceedings, judgments,
counsel fees, costs and expenses incident to such misrepresentation, breach or
nonfulfillment;
10
(b) Any fines and penalties levied on DHP for operations prior to the
Closing Date by the North Carolina or South Carolina Department of Insurance or
other regulatory authorities other than the fine disclosed in Schedule 2.14;
(c) Any tax or other obligation or liability, contingent or otherwise, of
the Seller in respect of the sale or any profit derived from the sale of the DHP
Stock;
provided, however, that the indemnification obligations of Seller shall be
limited to the amount of the Purchase Price.
Section 8.2 Indemnification by the Purchaser. The Purchaser agrees to
indemnify and hold the Seller harmless at all times after the date of this
Agreement from and against any and all loss, liability, damage or deficiency
resulting from (i) any misrepresentation, breach of warranty or nonfulfillment
of any covenants or agreements on the part of the Purchaser contained herein or
in any certificate or document furnished by the Purchaser pursuant hereto and
any loss or damage resulting from any claims, litigation, actions, suits,
proceedings, judgments, counsel fees, costs and expenses incident to such
misrepresentation, breach or nonfulfillment; and (ii) all liabilities arising
out of or in connection with the operation of DHP subsequent to the Effective
Date.
Section 8.3 Third Party Claims. Should any claim be made by a person not a
party to this Agreement with respect to any matter to which the foregoing
indemnity relates, the party against whom such claim is asserted (the
"Indemnified Party"), within a reasonable period of time, shall give written
notice to the other party (the "Indemnifying Party") of any such claim, and the
Indemnifying Party shall thereafter defend or settle any such claim, at its sole
expense, on its own behalf and with counsel of its selection. In such defense or
settlement of any claims, the Indemnified Party shall cooperate with the
Indemnifying Party to the maximum extent reasonably possible. Any payment
resulting from such defense or settlement, together with the total expense
thereof, shall be binding on Seller and Purchaser for the purpose of this
Article VIII.
Section 8.4 Settlement. Notwithstanding the foregoing, should any claim be
made by a person not a party to this Agreement with respect to any matter to
which the foregoing indemnity relates, the Indemnified Party, on not less than
thirty (30) days' notice to the Indemnifying Party, may make settlement of such
claim, and such settlement shall be binding on the Indemnifying Party and the
Indemnified Party for the purposes of this Article VIII; provided, however, that
if within said thirty (30) day period the Indemnifying Party shall have
requested the Indemnified Party not to settle such claim and to deny such claim
at the expense of the Indemnifying Party, the Indemnified Party will promptly
comply and the Indemnifying Party shall have the right to defense on its own
behalf with counsel of its selection. Any payment or settlement resulting from
such claim, together with the total expense thereof, shall be binding on Seller
and Purchaser for the purposes of this Article VIII.
Section 8.5 Mediation/Arbitration. In the event of any claim or dispute
between the parties arising out of this Agreement, the parties agree to resolve
any such dispute or disagreement by submitting such dispute first to mediation
and second to arbitration pursuant to the following procedures:
(a) Mediation. The parties shall mediate any dispute or disagreement upon
the written demand of any party with the mediator appointed by the Judicial
Arbitration & Mediation Services, Inc. ("JAMS") or another party upon mutual
agreement of all parties in disagreement, pursuant to the following terms and
conditions.
(1) Best Efforts. The parties agree to use their best efforts to
resolve their dispute by mediation before proceeding to binding arbitration.
(2) Hearings, Scheduling and Parties Present. After the mediator has
been appointed, the parties shall promptly agree upon a date and time for the
initial conference with the mediator, but no later than thirty (30) days after
the date the mediator was selected. The location of the mediation shall be in
Durham, North Carolina. The parties understand and agree that, besides counsel,
a representative from each side with full settlement authority shall be present
at all mediation conferences unless excused by the mediator. Each party may have
other representatives, agents or witnesses present at the mediation to respond
to questions, contribute
11
information and participate in the mediation. The number of additional parties
may be agreed upon in advance with the assistance and advice of the mediator.
(3) Discovery. In the event that a party has a substantial need for
information in the possession of another party to prepare for the mediation
conference, the parties shall use their best efforts to agree upon the procedure
for expeditious exchange of information and, if required, the mediator shall
assist in such efforts.
(4) Position Papers. Each party shall deliver to the mediator and each
party to the mediation a concise written summary of its position together with
any appropriate documents supporting such position no later than seven (7) days
before the scheduled mediation session, including a proposed solution to the
matters in controversy.
(5) Mediator's Role. Once familiar with the issues involved in the
mediation, the mediator shall, if requested by both of the parties, give an
opinion of the probable outcome of the case and a range of settlement value and
trial value if the case were litigated. The mediator shall, in the absence of
instructions from the parties to the contrary, give recommendations regarding
the possible settlement terms and conditions. The opinions and recommendations
of the mediator are not binding on the parties.
(6) Fees and Costs. The fees and costs of the mediation shall conform
to the then current fee schedule of JAMS. Fees and costs of the mediation shall
be borne equally by Purchaser and the Seller and each party shall pay its own
professional fees and costs.
(7) Confidentiality of Proceedings. The mediation shall be considered
settlement negotiations for the purpose of all state and federal rules and laws
protecting disclosures made during such conferences from later discovery or use
in evidence. The mediation shall be confidential and no stenographic or other
written records shall be made except the memorialized settlement record. All
conduct, promises, offers, views, opinions or statements, whether oral or
written, by any party, the party's agent, employee, or representative are
confidential and, where appropriate, considered work product and privileged and
the same shall not be subject to discovery or voluntary disclosure or admissible
for any purpose, including impeachment in litigation between the parties,
provided, however, that evidence otherwise subject to discovery or admissible is
not excluded from discovery or admission in evidence as a result of the same
being used in connection with the mediation.
(8) Termination of the Mediation. The mediation shall continue until
the matter is resolved or the mediator makes a good faith finding that all
settlement possibilities have been exhausted and there is no reasonable
likelihood of resolution through mediation.
(b) Binding Arbitration. After attempting to resolve the dispute in good
faith through mediation, the parties shall, upon written request of either or
all parties, submit any dispute or disagreement to binding arbitration by JAMS
in accordance with the foregoing rules and procedures regarding mediation
specified above in paragraph (a), with the following exceptions:
(1) Selection of the Arbitrator. The arbitrator shall be selected by
JAMS and a single arbitrator shall conduct the arbitration.
(2) Position Papers. Each party shall be entitled to submit a reply to
the other party's position paper to the arbitrator.
(3) Arbitrator's Role. The decision of the arbitrator shall be final
and binding on the parties, and shall be enforceable under the Uniform
Arbitration Act of the state in which the arbitration is conducted and the terms
of that Act shall apply.
(4) Fees and Costs. The arbitrator shall be allowed, in his or her
discretion, to require the losing party to pay the reasonable attorney's fees
and costs of the prevailing party provided the arbitrator finds that the
assessment of such fees and costs serves substantial justice; such fees and
costs shall not otherwise be awardable
12
in any mediation between the parties The award of the arbitrator, including the
assessment of reasonable attorney's fees and costs, if any, shall bear interest
at the legal rate until the date when the awarded fees and costs, if any, are
paid in full.
(c) Except where specifically modified above, all other terms and
procedures specified for the mediation in paragraph (a) shall apply in the
arbitration.
Section 8.6 Adjustment to the Purchase Price. For all tax purposes, any
payment by Purchaser or Seller under this Agreement will be an adjustment to the
Purchase Price.
ARTICLE IX
BROKERAGE
The Seller and the Purchaser represent and warrant to the other that the
negotiations relative to this Agreement have been carried on by the Seller
directly with the Purchaser and by the Purchaser directly with the Seller,
without the intervention of any person other than Advest, Inc.; Coastal and the
Seller shall be responsible for compensating Advest, Inc. and shall indemnify
and hold Purchaser harmless from and against all such obligations to Advest,
Inc. The Seller shall indemnify the Purchaser and the Purchaser shall indemnify
the Seller and hold the other party or parties harmless against and in respect
of any claim for brokerage or other commissions relative to this Agreement
(other than the aforesaid Advest, Inc. compensation), or to the transactions
contemplated hereby, and also in respect of all expenses of any character
incurred by the Purchaser, on the one hand, and by the Seller, on the other
hand, in connection with this Agreement or such transactions, arising out of any
claim for any such brokerage or other commissions alleged to be due as a result
of the actions or conduct of the indemnifying party.
ARTICLE X
FURTHER ASSURANCES; ACCESS AND INFORMATION; CONDITIONS PRECEDENT
Section 10.1 Further Assurances. The Seller and Purchaser all hereby
covenant and agree that at any time and from time to time they will promptly
execute and deliver to the others such further instruments and documents and
take such further action as the parties may from time to time reasonably request
in order to further carry out the intent and purpose of this Agreement.
Section 10.2 Access and Information. Purchaser and its agents, attorneys,
accountants and representatives have had full access to the respective
properties, affairs, books, records, contracts and documents of DHP, including,
without limitation, all contracts, leases, evidence of indebtedness and audit
work papers of the internal auditors of the respective businesses, as Purchaser
has reasonably requested. Until the Closing, Purchaser shall not disclose and
shall cause its agents, attorneys, accountants and representatives not to
disclose to any other party any confidential data or information secured, and,
if the Closing does not occur as herein provided, Purchaser will promptly return
at Purchaser's expense, all books, records and other documents and papers
obtained and all copies thereof.
Section 10.3 Conditions Precedent. The obligations of the Seller and
Purchaser to consummate the transactions contemplated by this Agreement are
subject to the following conditions precedent:
(a) approval of the transactions contemplated by this Agreement by the
NCDOI and South Carolina Department of Insurance;
(b) approval of the material terms of this Agreement by the Board of
Directors of Coastal;
(c) the obtaining of financing satisfactory to Purchaser to consummate the
transactions contemplated under this Agreement; and
(d) completion and approval by the Seller and Purchaser of all Exhibits and
Schedules to this Agreement.
13
ARTICLE XI
NATURE AND SURVIVAL OF REPRESENTATIONS
All representations, warranties, and agreements made by the Seller in this
Agreement, except as otherwise expressly stated, shall survive the Closing and
any investigation at any time made by or on behalf of the Seller as follows:
(a) The representations, warranties and covenants contained in Sections
2.1, 2.2 and 5.11 hereof shall survive forever;
(b) The representations, warranties and covenants contained in Section 2.16
hereof shall survive for a period of six months following the expiration of the
relevant statue of limitations;
(c) The representation, warranties and covenants relating to all
liabilities retained by Seller or not specifically assumed by Purchaser shall
survive forever; and
(d) All other representations, warranties, and covenants made hereunder by
Seller shall be effective for a period of twelve (12) months following the
Closing Date. Within said twelve month period, Purchaser must provide written
notice to the Seller of the breach of any representation, warranty or covenant,
pursuant to which Purchaser asserts a claim stating with particularity all
material facts then known to Purchaser relating to such claim.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Third Party Beneficiary. Coastal, its successors and assigns
and Xxxxxx X. Xxxxx, M.D., his successors and assigns, are intended to be direct
third-party beneficiaries of the covenants contained in this Agreement and may
enforce the same in their own respective name, as applicable.
Section 12.2 Notices; Addresses. All notices, requests, demands, and other
communications hereunder shall be in writing, and shall be deemed to have been
duly given if delivered or mailed, first class postage prepaid, addressed as
follows:
COASTAL: Coastal Physician Group, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxxx, Xxxxx Xxxxxxxx 00000
Attention: President
CMH: Coastal Managed Healthcare, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxxx, Xxxxx Xxxxxxxx 00000
Attention: President
PURCHASER: DHP Holdings, LLC
0000 Xxxxxxxxxx Xxxxx
Xxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, M.D., President
Section 12.3 Expenses. Except as otherwise provided herein, the parties
hereto shall pay all of their own expenses relating to the transactions
contemplated by this Agreement, including, without limitation, the fees and
expenses of their respective legal counsel and financial advisors.
Section 12.4 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14
Section 12.5 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, shall as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 12.6 Assigns/Assignments. This Agreement shall be binding upon and
inure to the benefit of the parties hereto any and all successors, assigns, or
other successors in interest of the Purchaser, Coastal and the Seller. Neither
the Seller nor the Purchaser shall be entitled to assign this Agreement or any
rights hereunder without the written consent of the other party.
Section 12.7 Public Announcement. Prior to Closing, no party will make any
public announcements with respect to this transaction without the approval of
the other parties, except as otherwise required by law, by the Securities and
Exchange Commission, or that are recommended by legal counsel.
Section 12.8 Confidentiality. Except to the extent the parties agree or are
required by law to make information public pursuant to Section 12.7, the parties
agree to keep the terms of this Agreement confidential and not to disclose the
contents of this Agreement to any party other than employees of a party who
agree to maintain such confidentiality and the professional advisors and
representatives of the parties.
Section 12.9 Remedies. In the event that any party defaults or fails to
perform any of the conditions or obligations of such party under this Agreement
or any other agreement, document or instrument executed in connection with this
Agreement, or in the event that any such party's representations or warranties
contained herein or in any such other agreement, document or instrument are not
true and correct as of the date hereof and as of the Closing, the other parties
shall be entitled to exercise any and all rights and remedies available to them
by or pursuant to this Agreement or at law or in equity.
Section 12.10 Captions. The captions and headings set forth in this
Agreement are for convenience of reference only and shall not be construed as a
part of this Agreement.
Section 12.11 Merger Clause. This Agreement contains the final, complete
and exclusive statement of the agreement between the parties with respect to the
transactions contemplated herein and all prior or contemporaneous written or
oral agreements with respect to the subject matter hereof are merged herein.
Section 12.12 Amendments. No change, amendment, qualification or
cancellation hereof shall be effective unless in writing and executed by all of
the parties hereto by their duly authorized officers.
Section 12.13 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina.
15
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
_____ day of March, 1998, effective as of January 1, 1998.
COASTAL MANAGED HEALTHCARE, INC.
By:
--------------------------------
Its:
-------------------------------
ATTEST:
By:
--------------------------
Secretary
[Corporate Seal]
COASTAL PHYSICIAN GROUP, INC.
By:
--------------------------------
Its:
-------------------------------
ATTEST:
By:
--------------------------
Secretary
[Corporate Seal]
DHP HOLDINGS, LLC
By:
--------------------------------
Manager
16
EXHIBIT A
PROMISSORY NOTE
$5,000,000.00 March ___, 1998
FOR VALUE RECEIVED, DHP HOLDINGS, LLC, a North Carolina limited liability
company, (the "Borrower") hereby promises to pay to the order of COASTAL MANAGED
HEALTHCARE, INC., a North Carolina corporation (the "Lender"), at such place or
places as the Lender may designate the principal sum of FIVE MILLION and
NO/DOLLARS ($5,000,000.00). The full principal amount shall be payable in full
on or before the date ten days after the date hereof (the "Due Date") and shall
accrue no interest so long as the full balance is paid by the Due Date. If the
full balance is not paid by the Due Date, any unpaid portion of the balance
shall bear interest from the Due Date at the per annum rate of twelve percent
(12%).
The principal balance of this Note is given as partial payment of the
purchase price for the purchase of stock of Doctors Health Plan, Inc. by
Borrower from Lender and is issued in accordance with Section 1.3 of the Stock
Purchase Agreement by and between Borrower, Coastal Physician Group, Inc. and
the Lender (the "Purchase Agreement").
This Note may be prepaid in whole or in part at any time without penalty or
premium.
Upon the occurrence of any of the following events (each a "default"):
c. failure to pay any principal or interest under this Note as the
same becomes due;
d. the filing of a voluntary petition by the Borrower seeking the
protection of the bankruptcy court under any chapter or section of the
Bankruptcy Code, as amended, or any state insolvency laws, by the Borrower,
or if the Borrower has an involuntary petition filed against it under any
chapter or section of the Bankruptcy Code, as amended, or any state
insolvency laws, and such petition is not dismissed within sixty (60) days
of its filing; or
e. by the order of a court of competent jurisdiction, a trustee or
receiver of a material portion of the assets of the Borrower shall be
appointed and such order shall not be discharged or dismissed within sixty
(60) days;
then in any such event the holder may without further notice, declare the
remainder of the principal sum due. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same at any other time.
Upon default the holder of this Note may employ an attorney to enforce the
holder's rights and remedies and the maker and any principal, surety, guarantor
and endorser of this Note hereby agree to pay to the holder reasonable
attorney's fees plus all other reasonable expenses incurred by the holder in
exercising any of the holder's rights and remedies upon default.
All parties to this Note, including the Borrower and any surety, endorser
or guarantor hereby waive protest, presentment, notice of dishonor, and notice
of acceleration of maturity and agree to continue to remain bound for the
payment of principal, interest and all other sums due under this Note
notwithstanding any change or changes by way of release, surrender, exchange,
modification or substitution of any security for this Note or by way of any
extension or extensions of time for the payment of principal and interest; and
all such parties waive all and every kind of notice of such change or changes
and agree that the same may be made without notice or consent of any of them.
This Note shall be governed and construed in accordance with the laws of
the State of North Carolina.
IN TESTIMONY WHEREOF, the Borrower has signed, sealed and delivered this
Note as of the date first above written.
DHP HOLDINGS, LLC
By: (SEAL)
--------------------------------
Manager
18
EXHIBIT B
Partial Release of Non-Compete Provisions of Employment Agreement
between Xxxxxx X. Xxxxx, M.D.
and
Coastal Physician Group, Inc.
This Partial Release of Non-Compete Provisions of Employment Agreement is
made and entered into this the ____ day of ____________, 1998, by and between
Xxxxxx X. Xxxxx, M.D. ("Xxxxx") and Coastal Physician Group, Inc. ("Coastal").
Xxxxx and Coastal are parties to an Employment Agreement dated April 1,
1991, ("Agreement") pursuant to which Xxxxx is employed by Coastal as its
President and Chief Executive Officer; and
The Agreement contains certain provisions restricting Xxxxx'x activities
that are in competition with Coastal or its subsidiaries; and
An affiliate of Xxxxx, Coastal and certain of its subsidiaries, have
entered into an agreement dated the date hereof (the "Purchase Agreement")
pursuant to which such affiliate of Xxxxx, known as DHP Holdings, LLC, will
purchase the stock of Doctors Health Plan, Inc. ("DHP"); and
The parties are desirous of amending the Agreement in order that the
ownership, operation and potential expansion of DHP into certain areas by Xxxxx
or any of his affiliates shall not be deemed to be a violation of the
non-competition or any other provisions of the Agreement.
NOW, THEREFORE, in consideration of the purchase of the stock of DHP
referred to above, the parties agree as follows:
1. Partial Release of Non-Compete Provisions. Notwithstanding the
non-compete or any other provisions of the Agreement, and notwithstanding any
provisions of any other agreement between Xxxxx or any of his affiliates other
than Coastal or its subsidiaries (collectively, the "Xxxxx Entities") and
Coastal or any of its subsidiaries (collectively, the "Coastal Entities"),
a. except as provided in c. below, the Xxxxx Entities may hereafter
enter into the business of owning, managing, operating or otherwise providing
services to health maintenance organizations, preferred provider organizations
or similar organizations (collectively "HMOs");
b. except as provided in c. below, the Xxxxx Entities shall be
permitted to increase and expand their ownership, management, and operation of
HMOs, including without limitation creating start up locations or acquiring
additional HMOs in any geographic location; and
c. notwithstanding the foregoing, so long as Coastal and/or its
affiliates operate HMOs in the States of Florida and Georgia, the Xxxxx Entities
shall not manage, operate, own or provide any services to any HMO in any
counties in which such HMOs operated by Coastal and/or its affiliates provide
services or any county contiguous to such counties.
For so long as the Coastal Entities' non-compete agreement pursuant to
Section 5.9 of the Purchase Agreement remains in effect, the Xxxxx Entities
shall not be required to first offer the Coastal Entities any opportunities
which the Xxxxx Entities may have to increase or expand their ownership,
management or operation of, or other business relationships with HMOs (other
than opportunities in the counties in Florida and Georgia in which Coastal
and/or its affiliates operate HMOs and contiguous counties, which the Xxxxx
Entities are prohibited from pursuing). Upon expiration of the Coastal Entities'
non-compete agreement in accordance with Section 5.9 of the Purchase Agreement,
if any opportunities to own, operate, manage or otherwise provide services to
HMOs are made available to Xxxxx or any of the other Xxxxx Entities by reason of
Xxxxx'x position as an officer, employee, director or
shareholder of Coastal, then Xxxxx shall first make reasonable efforts to
determine whether Coastal desires to avail itself of such opportunity. If
Coastal informs Xxxxx that it intends to avail itself of such opportunity, then
Xxxxx and the other Xxxxx Entities shall not pursue such opportunity or enter
into any transaction with respect to such opportunity unless and until Coastal
shall advise Xxxxx that no Coastal Entity has any further interest in pursuing
such opportunity.
2. Ratification of Remainder of Agreement. Except as specifically modified
herein, the remaining terms of the Agreement are hereby specifically ratified
and confirmed in all respects.
IN WITNESS WHEREOF, the parties have executed this agreement as of the day
and year first above written.
COASTAL PHYSICIAN GROUP, INC.
By:
--------------------------------
Title:
-----------------------------
-----------------------------------
Xxxxxx X. Xxxxx, M.D.
2
EXHIBIT C
Financial Statements for Doctors Health Plan, Inc.
SCHEDULE 2.5
------------
Other Business Names
None
SCHEDULE 2.7
------------
RENTAL LEASES
Sublease Agreement by and between DHP as "Subtenant" and Sea-Land Service, Inc.
as "Sublandlord" dated December 5, 1997 for the Charlotte sales office for the
period from December 20, 1997 through June 30, 2001, a copy of which has been
previously delivered to Purchaser.
Sublease Agreement by and between DHP as "Subtenant" and Century American
Insurance Company as "Sublandlord" dated July 1, 1997 for the period July 1,
1997 through June 30, 2000 for administrative offices at 0000 Xxxxxxxxxx Xxxxx,
Xxxxxx, Xxxxx Xxxxxxxx, a copy of which has been previously delivered to
Purchaser.
SCHEDULE 2.8
------------
EQUIPMENT LEASES
SCHEDULE 2.9
------------
Intangible Personal Property
Certificate of Authority pursuant to N.C. Gen. State. Chapter 58, Article
67 to operate a North Carolina Health Maintenance Organization.
South Carolina license to operate a health maintenance organization.
SCHEDULE 2.10
-------------
Liens on Assets
None
SCHEDULE 2.11(A)
----------------
Written Employment Agreements
None
SCHEDULE 2.11(B)
----------------
List of Employment Claims and Suits
None
SCHEDULE 2.14
-------------
Non-Compliance with Applicable Laws
-----------------------------------
(i) Commissioner's Summary Order of the North Carolina Department of
Insurance dated February 6, 1997, effective February 7, 1997, (ii) Additional
Instructions effective February 26, 1997 to the February 7, 1997 Commissioner's
Summary Order, and (iii) Revocation of February 7, 1997 List of Transactions
Expressly Approved, Amendment to February 7, 1997 Commissioner's Summary Order
and Additional Instructions to February 7, 1997 Commissioner's Summary Order,
effective January 21, 1998, copies of which have previously been furnished to
Purchaser.
Report on Market Practices Examination of Doctors Health Plan, Inc. by
Representatives of the North Carolina Department of Insurance as of October 22,
1997 and letter relating thereto dated December 23, 1997, copies of which have
previously been furnished to Purchaser. The report requires DHP to submit a
Statement of Corrective Actions to the Department of Insurance.
The capital of DHP is less than the amount required by statute per the
statutory financial statements filed on March 2, 1998 prepared as of December
31, 1997. Purchaser will be required to invest additional capital into DHP in
order to be in compliance with the minimum capital and surplus statutory
requirements.
Proposed Consent Decree presented to representatives of DHP and Coastal on
February 27, 1998 by the North Carolina Department of Insurance providing for a
$500,000 fine and requiring additional capital infusions.
Consents/Approvals Required
---------------------------
Approval of the North Carolina Department of Insurance.
Approval of the South Carolina Department of Insurance.
SCHEDULE 2.16
-------------
Delinquent Tax Returns
Coastal, on behalf of DHP, has consented to an extension of the statute of
limitations through December, 1999 for federal income tax returns for DHP for
1992, 1993, 1994, 1995 and 1996.
SCHEDULE 2.17
-------------
Litigation
None
SCHEDULE 2.18
-------------
Jurisdictions in which business conducted
North Carolina
South Carolina
