EXHIBIT 10.16
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (the "Amendment"), made
and entered into effective as of February 1, 2000, is by and among MACNEAL
HEALTH SERVICES CORPORATION, an Illinois not-for-profit corporation ("MHSC"),
THE MACNEAL MEMORIAL HOSPITAL ASSOCIATION, an Illinois not-for-profit
corporation ("XxxXxxx Hospital") (each individually a "Seller" and collectively
the "Sellers"), MACNEAL HEALTH FOUNDATION, an Illinois not-for-profit
corporation (the "Foundation"), VHS OF ILLINOIS, INC., a Delaware corporation
("Buyer"), and VANGUARD HEALTH SYSTEMS, INC., a Delaware corporation
("Vanguard").
W I T N E S S E T H
WHEREAS, the Parties entered into an Asset Purchase Agreement dated as of
October 4, 1999 (the "Agreement"), pursuant to which Sellers agreed to sell,
and Buyer agreed to purchase, substantially all of Sellers' assets used in the
conduct of the Healthcare Businesses; and
WHEREAS, the Parties desire to amend the Agreement;
NOW, THEREFORE, for and in consideration of the premises, and the
agreements, covenants, representations and warranties hereinafter set forth,
and other good and valuable consideration, the receipt and adequacy of which
are forever acknowledged and confessed, the Parties, intending to be legally
bound, amend the Agreement as follows:
1. DEFINITIONS AND REFERENCES. Section 1 of the Agreement is amended as
follows:
1.01. Definitions.
(a) The definition of "Assumed Contracts" is amended as follows:
"Assumed Contracts: the Seller Contracts listed or described on Schedule
2.01(f), the Subsidiary Contracts listed or described on Schedule A, and
the Immaterial Contracts to which any Seller or Subsidiary is a party, but
expressly excluding the Excluded Contracts;".
(b) The term "Common Shares" is hereby deleted and the term
"Preferred Shares" is inserted in lieu thereof in all places in the
Agreement.
(c) The defined term "Common Stock" is deleted and the following is
inserted in lieu thereof: "Preferred Stock: the preferred stock, $0.01 par
value per share, of Vanguard, having the rights, designations and
preferences described in Schedule 1.01 (the "Preferred Stock
Designations");" and all references in the Agreement to Common Stock shall
hereafter be references to Preferred Stock.
(d) The definition of Contracts is amended to read as follows:
"Contracts: the Seller Contracts and the Subsidiary Contracts;"
(e) The definition of "Neutral" is amended to read as follows:
"Neutral: defined in Section 10.04;".
(f) The definition of "Subsidiaries" is amended to read as follows:
"Subsidiaries: XxxXxxx Management Services, Inc., an Illinois corporation,
The 0000 Xxxx Xxxxxxxxx Partnership, an Illinois limited partnership,
Primary Care Physicians Center LLC, an Illinois limited liability company,
Midwest Claims Processing, Inc., an Illinois corporation, XxxXxxx Health
Providers, Inc., an Illinois corporation, BHS Digestive Disease
Associates, an Illinois general partnership, and MacNeal/Xxxx/Xxxx Joint
Venture, an Illinois general partnership;".
2. Excluded Seller Assets. Section 2.02(f) is amended to read as follows:
"(f) all membership, ownership or investment interests of any Seller in any
other Seller, in the Foundation and, subject to Section 5.25, in the RML
Partnership;"
3. Purchase Price; Purchase Price Adjustment.
3.01. Section 2.05 of the Agreement is amended as follows:
3.02. Clause (iii) of Section 2.05(d) is amended to read as follows:
"(iii) $20,000,000, payable by delivery of 20,000 shares of Vanguard Payable in
Kind Cumulative Redeemable Convertible Preferred Stock (the "Preferred
Shares").
3.03. The first sentence of Section 2.05(f) of the Agreement is
amended as follows: "The Preferred Shares issuable as part of the Purchase
Price shall be issued at Closing to XxxXxxx Hospital and Buyer shall issue and
deliver a stock certificate at Closing to XxxXxxx Hospital evidencing its
ownership of the Preferred Shares."
3.04. The following new Section 2.05(g) is added to the Agreement:
(g) The Parties expect that XxxXxxx Hospital may most likely be
able to utilize Rule 144 under the Securities Act (such Rule 144 or
any successor thereto herein called "Rule 144") in its sale or sales
of the Vanguard common stock obtained upon automatic conversion of
the Preferred Shares into shares of such common stock (the
"Foundation Preferred Shares") at any time after the 6-month lock-up
period expires subsequent to Vanguard's initial public offering (the
"IPO") of its common stock under the Securities Act (the "Foundation
Public Sale Period"); and due to the tacking provisions of Rule 144
(d)(3)(ii) which allows XxxXxxx Hospital's holding period of the
XxxXxxx Hospital Preferred Shares to commence upon the issuance date
of the Preferred Shares, the Parties expect that XxxXxxx Hospital's
sales of the XxxXxxx Hospital Preferred Shares during the XxxXxxx
Hospital Public Sale Period will (I) either be subject to the volume
limitations set forth under Rule 144(e) which apply to securities
with a holding period in excess of 1 year but less than 2 years (the
"Rule 144(e) Period") or (2) not be subject to such volume
limitations but be unlimited as to amount of securities that may be
sold under Rule 144(k) ( the "Rule 144(k) Period"). In the event that
when XxxXxxx Hospital wishes to sell any of the XxxXxxx Hospital
Preferred Shares either (1) XxxXxxx Hospital is not in the Rule
144(k) Period or
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(2) XxxXxxx Hospital cannot sell all of the XxxXxxx Hospital Preferred
Shares which it wishes to sell during two consecutive three month periods
during the Rule 144(e) Period, then Vanguard will on one occasion register
the XxxXxxx Hospital Preferred Shares for sale by XxxXxxx Hospital under
the Securities Act on Form S-3 (or successor form to such Form S-3) upon
the written demand of XxxXxxx Hospital (the "Foundation Demand
Registration") which Registration Statement on Form S-3 may remain
effective at the request of XxxXxxx Hospital for up to 90 days provided
XxxXxxx Hospital's demand for XxxXxxx Hospital Demand Registration may not
be made until Vanguard qualifies for the use of Form S-3 which
qualification commences upon the expiration of one year after the IPO.
Vanguard will pay all expenses of the XxxXxxx Hospital Demand Registration
except (1) out of pocket expenses of XxxXxxx Hospital including expenses
of XxxXxxx Hospital's attorneys and other professional advisors in such
registration and (2) XxxXxxx Hospital's underwriting fees or discounts or
brokerage commissions attributable to the sale of the XxxXxxx Hospital
Preferred Shares. In addition, the XxxXxxx Hospital Demand Registration
shall otherwise be subject to all other applicable registration provisions
currently in force as to all other current Vanguard shareholders for
post-IPO registrations of their Vanguard common stock which provisions are
set forth in Article 3 of the Surviving Shareholders Agreement (as defined
in the Shareholders Agreement) and which provisions are incorporated by
reference herein as if fully stated herein.
4. Subsidiaries; Third Party Rights. The first clause of Section 3.04(e)
is amended to read as follows: "Except as described on Schedule 2.01(j) and
Schedule 3.04(a),...", and the last sentence of Section 3.04(e) is amended to
read as follows: "Other than this Agreement, except for limitations in
governing documents provided to Buyer restricting the transfer of interests in
Subsidiaries that are joint ventures, and except as otherwise described on
Schedule 3.04(a), there is no Contract between any Seller and any Person with
respect to the disposition of the shares of any Subsidiary."
5. Private Placement. Section 3.32 is amended as follows:
3.32. Private Placement.
(a) The Preferred Shares issuable as part of the Purchase Price
shall be issued at Closing to XxxXxxx Hospital and Buyer shall issue
and deliver a stock certificate at Closing to XxxXxxx Hospital
evidencing its ownership of the Preferred Shares."
(b) XxxXxxx Hospital represents that the Preferred Shares to be
acquired by the XxxXxxx Hospital at the Closing are being acquired
for its own account and without a current view to the public
distribution of such Preferred Shares or any interest therein.
(c) XxxXxxx Hospital is or at Closing will be an "Accredited
Investor" as such term is defined in Regulation D under the
Securities Act. XxxXxxx Hospital has sufficient knowledge and
experience in financial and business
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matters so as to be capable of evaluating the merits and risks of its
investment in the Preferred Shares and XxxXxxx Hospital is capable of
bearing the economic risks of such investment, including a complete
loss of the investment in the Preferred Shares.
(d) XxxXxxx Hospital has been furnished with and carefully read
a copy of this Agreement and has been given the opportunity to ask
questions of, and receive answers from, Vanguard concerning the terms
and conditions of the Preferred Shares and other related matters.
XxxXxxx Hospital further represents and warrants to Vanguard that
Vanguard has made available to XxxXxxx Hospital or its agents all
documents and information relating to an investment in the Preferred
Shares requested by or on behalf of XxxXxxx Hospital.
(e) The office of XxxXxxx Hospital in which the investment
decision was made is located in Berwyn, Illinois.
6. Preferred Shares. Section 4.05 of the Agreement is amended as follows:
4.05. Preferred Shares. The Preferred Shares issued to XxxXxxx
Hospital, when issued and delivered in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid, and
nonassessable and free of all preemptive rights, liens, voting or transfer
restrictions and encumbrances, except as may be provided under the Preferred
Stock Designations and federal or state securities laws.
7. RML Partnership. The first sentence of Section 5.25(b) is amended to
read as follows: "MHSC owns and shall retain a limited partnership interest in
the Partnership and an equity interest in RMHP Corporation, the general partner
of the Partnership."
8. Day School Program. Article 5 of the Agreement is amended by inserting
the following new section 5.27:
5.27. Day School Program. XxxXxxx Hospital operates a nonpublic
special education facility (the "Day School Program") that serves students with
disabilities in accordance with Section 14-7.02 of the Illinois School Code
(105 ILCS 5/14-7.02) and is reimbursed in accordance with the regulations of
the Purchased Care Review Board (23 Ill. Admin. Code 401.10, et. seq., and 89
Ill. Admin. Code 900.110, et. seq.). The Day School Program will continue to be
operated by XxxXxxx Hospital after Closing for not less than the remainder of
the school year then in effect (including Summer term). From and after Closing,
the Parties will evaluate the alternatives available to them with respect to
the operation of the Day School Program for school years beginning after the
expiration of the current school year. Such alternatives may include the
continued operation of the Day School Program by XxxXxxx Hospital or the
operation of the Day School Program by the Foundation or by Buyer. With respect
to the conduct of the Day School Program during the remainder of the school
year in effect at Closing, XxxXxxx Hospital and Buyer shall enter into a
management agreement at Closing in form and substance acceptable to the Parties
pursuant to which Buyer shall manage and provide all personnel, facilities,
services and other items necessary to operate the Day School Program for the
remainder of the school year in all material respects in the same manner as the
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Day School Program had been operated by XxxXxxx Hospital prior to Closing.
Under the management agreement, Buyer shall be responsible for all costs and
expenses associated with operating the Day School Program (including occupancy,
support, administrative and other costs), whether allowable or not by the
Purchased Care Review Board. In consideration for Buyer's management services,
XxxXxxx Hospital shall pay to Buyer a management fee equal to the positive net
cash flow from operation of the Day School Program (which management fee the
Parties acknowledge may not be an allowable cost). XxxXxxx Hospital shall
notify the Purchased Care Review Board, if and to the extent required by
applicable regulations, of the execution of the management agreement and the
Parties shall provide such other information that the Purchased Care Review
Board requests in connection therewith. With respect to school years beginning
after the current school year, (i) if the Parties determine that the Day School
Program should be operated by XxxXxxx Hospital or the Foundation, the Parties
shall enter into another management agreement upon substantially the same terms
and conditions as the management agreement executed at Closing (or such other
terms and conditions as are acceptable to the Parties), and (ii) if the Parties
determine that the Day School Program should be operated by Buyer, XxxXxxx
Hospital and the Foundation shall assist and cooperate with Buyer in filing
with the Illinois State Board of Education and the Purchased Care Review Board
a timely and complete application for approval of the Day School Program for
the following school year.
9. Opinion of Buyer's Counsel. Section 6.05(f) is deleted and 6.05(e) is
amended as follows:
(e) The Preferred Shares issued and delivered to XxxXxxx Hospital at
Closing were duly authorized and issued and represent fully-paid,
nonassessable shares of Preferred Stock free of all transfer restrictions
except those imposed by applicable Legal Requirements.
10. Section 7.14. The Parties acknowledge that Section 7.14 is
intentionally omitted from the Agreement.
11. Shareholders Agreements. Section 7.15 of the Agreement is deleted.
12. Action of Sellers and the Foundation at Closing. Sections 8.02(f) and
8.02(g) are hereby deleted.
13. Actions of Buyer at Closing. Section 8.03(d) is deleted and 8.03(b) is
amended as follows:
(b) to the Foundation that part of the Cash Portion of the Purchase
Price payable to the Foundation in accordance with Section 2.05(f) and to
XxxXxxx Hospital a certificate evidencing the Preferred Shares issued in
the name of XxxXxxx Hospital;
14. Schedules
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14.01. Schedule 1.01. Schedule 1.01 is attached to this Amendment and
incorporated into the Agreement and the list of Schedules included in the
Agreement is amended to include a reference to Schedule 1.01, which Schedule
has been prepared by Buyer.
14.02. Amended Schedules. Schedule 2.01(f) is amended by adding the
following Contracts to the list of Contracts not being assumed by Buyer:
108
271
272
With respect to the Contract with Xxxxxxx Xxxxxxx (No. 108), the Net Working
Capital shall be credited with an amount equal to the payments due to Xx.
Xxxxxxx for the remainder of the term of the Contract and Sellers shall pay off
the balance of such Contract.
15. Miscellaneous. Except as expressly amended by this Amendment, the
Agreement shall be and remain in full force and effect without change. All
capitalized terms used in this Amendment that are not otherwise defined herein
shall have the meanings ascribed to such terms in the Agreement. From and after
the date of this Amendment, this Amendment shall be incorporated into and
constitute a part of the Agreement as fully and completely as though originally
a part thereof, and references in this Amendment or the Agreement to the
"Agreement" shall mean the Agreement as amended hereby.
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IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
in multiple originals by their duly authorized officers as of the date set
forth on the first page hereof.
MACNEAL HEALTH SERVICES CORPORATION THE MACNEAL MEMORIAL HOSPITAL
ASSOCIATION
By: /s/ Xxxx XxXxxxxxx By: /s/ Xxxxx X. Xxxxx
------------------------------------- -------------------------------
Xxxx XxXxxxxxxx Xxxxx X. Xxxxx
President & CEO President & CEO
MACNEAL HEALTH FOUNDATION
By: /s/ Xxxx XxXxxxxxx
-------------------------------------
Name: Xxxx XxXxxxxxx
------------------------------------
Title: Director
-----------------------------------
VHS OF ILLINOIS, INC. VANGUARD HEALTH SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxx X. Xxxxx
------------------------------------- -------------------------------
Name: Xxxxx X. Xxxxx Name: Xxxxx X. Xxxxx
----------------------------------- --------------------------
Title: Executive Vice President Title: Executive Vice President
----------------------------------- -------------------------
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Schedule 1.01
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF PAYABLE IN KIND
CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
of
VANGUARD HEALTH SYSTEMS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, the undersigned, Xxxxxx X. Xxxxx, Executive Vice President, and Xxxxxx
Xxxxxxx, Secretary, of Vanguard Health Systems, Inc., a Delaware corporation
(hereinafter called the "Corporation"), pursuant to the provisions of Sections
103 and 151 of the General Corporation Law of the State of Delaware, do hereby
make this Certificate of Designations and do hereby state and certify that
pursuant to the authority expressly vested in the Board of Directors of the
Corporation by the Certificate of Incorporation, the Board of Directors duly
adopted the following resolutions:
RESOLVED, that, pursuant to Article Fourth of the Amended and Restated
Certificate of Incorporation (which authorizes 100,000 shares of preferred
stock, $.01 par value (the "Preferred Stock")), the Board of Directors hereby
fixes the powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of a series of Preferred Stock.
RESOLVED, that each share of such series of Preferred Stock shall rank
equally in all respects and shall be subject to the following provisions:
1. Number and Designation. 20,000 shares of the Preferred Stock of the
Corporation shall be designated as Payable In Kind Cumulative Redeemable
Convertible Preferred Stock (the "PIK Preferred Stock").
2. Rank. The PIK Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution and winding up, rank prior to all
classes or series of the Corporation's common stock, $.01 par value (the
"Common Stock"). All equity securities of the Corporation to which the PIK
Preferred Stock ranks prior (whether with respect to dividends or upon
liquidation, dissolution, winding up or otherwise), including the Common Stock,
are collectively referred to herein as the "Junior Securities." All equity
securities of the Corporation with which the PIK Preferred Stock ranks on a
parity (whether with respect to dividends or upon liquidation, dissolution
winding up or otherwise) are collectively referred to herein as the "Parity
Securities." All shares of any series of Preferred Stock of the Corporation to
which the PIK Preferred Stock ranks junior (whether with respect to dividends
or upon liquidation, dissolution, winding up or otherwise) are collectively
referred to herein as the "Senior Securities". The
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respective definitions of Junior Securities, Parity Securities and Senior
Securities shall also include any rights or options exercisable for or
convertible into any of the Junior Securities, Parity Securities and Senior
Securities, as the case may be. Subject to paragraph (b) of Section 7, the PIK
Preferred Stock shall be subject to the creation of Junior Securities and
Parity Securities.
3. Dividends. (a) The holders of shares of PIK Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends at the annual
rate of $80.00 per share. Such dividends shall be payable in arrears annually
on March 31 of each year for the fiscal period February 1 through January 31
(unless March 31 in any year is not a business day, in which event on the next
succeeding business day) (each of such dates being a "Dividend Payment Date"
and each such annual period ending on January 31 in each year commencing
January 31, 2001 being a "Dividend Period"). When, as and if declared, such
dividends shall be cumulative from the date of issue, whether or not in any
Dividend Period or Periods there shall be funds of the Corporation legally
available for the payment of such dividends. Each such dividend shall be
payable to the holders of record of shares of the PIK Preferred Stock, as they
appear on the stock records of the Corporation at the close of business on such
record dates, not more than 60 days or less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board of Directors. Accrued and unpaid
dividends for any past Dividend Periods may be declared and paid at any time,
without reference to any Dividend Payment Date, to holders of record on such
date, not more than 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors. Any dividend payments made with respect to PIK
Preferred Stock shall be made in cash; provided that, notwithstanding anything
to the contrary set forth herein, during any Dividend Period prior to the
Dividend Period ending January 31, 2008 (the "Pay in Kind Period"), such
dividend payments may be made, in the sole discretion of the Corporation, in
lieu of the payment in whole or in part of dividends in cash, by issuing
additional fully paid, duly authorized, validly issued and nonassessable shares
of PIK Preferred Stock at the rate of 0.08 shares of PIK Preferred Stock for
each $80.00 of such dividend not paid in cash, and the issuance of such
additional shares shall constitute full payment of such dividend; provided,
further, the Pay in Kind Period shall immediately terminate upon the
Corporation's payment of a cash dividend upon any share of its capital stock.
(b) The amount of dividends payable for the initial Dividend Period, or
any other period shorter or longer than a full Dividend Period, on the PIK
Preferred Stock shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of shares of PIK Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of
cumulative dividends, as herein provided, on the PIK Preferred Stock. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the PIK Preferred Stock that may be in
arrears.
(c) Notwithstanding anything contained herein to the contrary, no cash
dividends on shares of PIK Preferred Stock shall be declared by the Board of
Directors or paid or set apart for payment by the Corporation at such time as
the terms and provisions of any financing or working capital agreement of the
Corporation specifically prohibit such declaration, payment or setting apart
for payment or if such declaration, payment or setting apart for payment
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would constitute a breach thereof or a default thereunder or if such
declaration, payment or setting apart for payment would, upon the giving of
notice or passage of time or both, constitute such a breach or default;
provided, that subject to applicable law, if any cash dividends are prohibited
in whole or in part during the Pay In Kind Period, the Corporation may, to the
extent payment in cash of such dividends is not made, pay such dividends in
shares of PIK Preferred Stock in accordance with paragraph (a) of this Section
3; and provided, further, that nothing herein contained shall in any way or
under any circumstances be construed or deemed to require the Board of
Directors to declare or the Corporation to pay or set apart for payment any
dividends on shares of the PIK Preferred Stock at any time, whether permitted
by any of such agreements or not.
(d) So long as any shares of the PIK Preferred Stock are outstanding, no
dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Parity Securities, for any period
unless full cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the PIK Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment of the dividend on such class or series of
Parity Securities. When dividends are not paid in full or a sum sufficient for
such payment is not set apart, as aforesaid, all dividends declared upon shares
of the PIK Preferred Stock and all dividends declared upon any other class or
series of stock ranking on a parity as to dividends and amounts distributable
upon liquidation, dissolution or winding up shall be declared ratably in
proportion to the respective amounts of dividends accumulated and unpaid on the
PIK Preferred Stock and accumulated and unpaid on such Parity Securities. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the PIK Preferred Stock or any other Parity
Securities which may be in arrears.
(e) (i) Holders of shares of the PIK Preferred Stock shall be entitled to
receive the dividends provided for in paragraph (a) of this Section 3 in
preference to and in priority over any dividends upon any of the Junior
Securities.
(ii) The Corporation shall not declare, pay or set apart for payment
any dividend on any of the Junior Securities or make any payment on account of
or set apart for payment money for a sinking or other similar fund for the
purchase, redemption or other retirement of, any of the Junior Securities or
any warrants, rights, calls or options, exercisable for or convertible into any
of the Junior Securities, or make any distribution in respect thereof, either
directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property (other than distributions or dividends in Junior
Securities to the holders of Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled by the
Corporation to purchase or redeem any of the Junior Securities so long as any
shares of the PIK Preferred Stock are outstanding, unless prior to or
concurrently with such declaration, payment, setting apart for payment,
purchase, redemption or distribution, as the case may be, all accrued and
unpaid dividends on shares of the PIK Preferred Stock not paid on the dates
provided for in paragraph (a) of this Section 3 shall have been or be paid or
set apart for payment.
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(f) Subject to the foregoing provisions of this Section 3 and applicable
law, the Board of Directors may declare and the Corporation may pay or set
apart for payment dividends on any of the Junior Securities or Parity
Securities, may make any payment on account of or set apart for payment money
for a sinking fund or other similar fund for the purchase, redemption or other
retirement of, any of the Junior Securities or Parity Securities or any
warrants, rights, calls or options, exercisable for or convertible into any of
the Junior Securities or Parity Securities, and may make any distribution in
respect thereof, either directly or indirectly, and whether in cash,
obligations or shares of the Corporation or other property, and may purchase or
otherwise redeem any of the Junior Securities or Parity Securities or any
warrants, rights or options exercisable for or convertible into any of the
Junior Securities or Parity Securities, and the holders of the shares of the
PIK Preferred Stock shall not be entitled to share therein.
4. Liquidation Preference. (a) In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
before any payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of Junior
Securities, the holders of the shares of PIK Preferred Stock shall be entitled
to receive $1,000 per share of PIK Preferred Stock plus an amount equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the shares of PIK Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any Parity Securities, then such assets, or the
proceeds thereof, shall be distributed among the holders of shares of PIK
Preferred Stock and any such other Parity Securities ratably in accordance with
the respective amounts that would be payable on such shares of PIK Preferred
Stock and any such other stock if all amounts payable thereon were paid in
full. Notwithstanding anything else in this Certificate of Designations, a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation shall not be deemed to have occurred upon (i) the acquisition of
the Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation, whether of the Corporation with or into any other corporation
or corporations or of any other corporation or corporations with or into the
Corporation; or (ii) a sale of all or substantially all of the assets of the
Corporation.
(b) Subject to the rights of the holders of any Parity Securities, after
payment shall have been made in full to the holders of the PIK Preferred Stock,
as provided in paragraph (a) of this Section 4, any other series or class or
classes of Junior Securities shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the PIK Preferred Stock
shall not be entitled to share therein.
5. Redemption. (a) To the extent the Corporation shall have funds legally
available for such payment, the Corporation may redeem at its option shares of
PIK Preferred Stock, at any time in whole or from time to time in part, at a
redemption price of $1,000 per share, together with accrued and unpaid
dividends thereon to the date fixed for redemption, without interest.
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(b) To the extent the Corporation shall have funds legally available for
payment, the Corporation shall redeem all outstanding shares of PIK Preferred
Stock upon the earliest to occur of the following dates:
(i) January 31, 2015;
(ii) no later than 90 days after there shall have been a Change
in Control of the Corporation; and
(iii) no later than 90 days after the Corporation or its
affiliate shall have sold to a Person not its affiliate all or
substantially all of the assets of XxxXxxx Hospital, Berwyn,
Illinois.
Such shares shall be redeemed at a redemption price of $1,000 per share,
together with accrued and unpaid dividends thereon to the redemption date,
without interest.
(c) Shares of PIK Preferred Stock which have been issued and reacquired in
any manner, including shares purchased or redeemed, shall (upon compliance with
any applicable provisions of the laws of the State of Delaware) have the status
of authorized and unissued shares of the class of Preferred Stock undesignated
as to series and may be redesignated and reissued as part of any series of the
Preferred Stock; provided, however, that no such issued and reacquired shares
of PIK Preferred Stock shall be reissued or sold as PIK Preferred Stock unless
reissued as a stock or pay in kind dividend on shares of PIK Preferred Stock.
(d) If the Corporation is unable or shall fail to discharge its obligation
to redeem all outstanding shares of PIK Preferred Stock pursuant to paragraph
(b) of this Section 5 (the "Mandatory Redemption Obligation"), the Mandatory
Redemption Obligation shall be discharged as soon as the Corporation is able to
discharge such Mandatory Redemption Obligation. If and so long as any Mandatory
Redemption Obligation with respect to the PIK Preferred Stock shall not be
fully discharged, the Corporation shall not (i) declare or pay any dividends or
make any distribution on or, directly or indirectly, purchase, redeem or
discharge any mandatory redemption, sinking fund or other similar obligation in
respect of any Parity Securities or any warrants, rights or options exercisable
for or convertible into any of the Parity Securities (except in connection with
a redemption, sinking fund or other similar obligation to be satisfied pro rata
with PIK Preferred Stock) or (ii) declare or pay any dividend or make any
distributions on, or, directly or indirectly, purchase, redeem or satisfy any
such mandatory redemption, sinking fund or other similar obligation in respect
of the Junior Securities or any warrants, rights or options exercisable for or
convertible into any of the Junior Securities.
(e) Notwithstanding the foregoing provisions of this Section 5, unless the
full cumulative dividends on all outstanding shares of PIK Preferred Stock
shall have been paid or contemporaneously are declared and payable for all past
and current dividend periods, none of the shares of PIK Preferred Stock shall
be redeemed, and no sum shall be set aside for such redemption, unless shares
of PIK Preferred Stock are redeemed pro rata.
12
(f) Change in Control. For purposes of this Certificate of Designations, a
Change in Control of the Corporation shall have occurred if:
(i) any Person (other than (1) the Corporation, any of its
subsidiaries or any of its stockholders on February 1, 2000 (or any
affiliate of any such stockholder)), (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or any of its subsidiaries, (3) an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (4) any corporation owned, directly or indirectly, by
the stockholders of the Corporation in substantially the same
proportions as their ownership of the Corporation's common stock)),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934 (the "Exchange Act")), directly
or indirectly, of securities of the Corporation representing more
than 50% of the combined voting power of the Corporation's then
outstanding voting securities;
(ii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other
than both (A)(1) a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or parent
entity) 50% or more of the combined voting power of the voting
securities of the Corporation or such surviving or parent entity
outstanding immediately after such merger or consolidation or (2) a
merger or consolidation in which no Person acquires 50% or more of
the combined voting power of the Corporation's then outstanding
securities; and (B) immediately after the consummation of such merger
or consolidation described in clause (A)(1) or (A)(2) above (and for
at least 180 days thereafter) neither the Corporation's Chief
Executive Officer nor its Chief Financial Officer change from the
people occupying such positions immediately prior to such merger or
consolidation except as a result of their death or disability and
neither of such officers shall have changed prior to such merger or
consolidation at the direction of a Person who has entered into an
agreement with the Corporation the consummation of which will
constitute a Change in Control of the Corporation; or
(iii) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale
or disposition by the Corporation of all or substantially all of the
Corporation's assets (or any transaction having a similar effect).
6. Procedure for Redemption. (a) In the event the Corporation shall redeem
shares of PIK Preferred Stock, notice of such redemption shall be given by
first class mail, postage prepaid, mailed not less than 30 days nor more than
60 days prior to the redemption date, to each holder of record of the shares to
be redeemed at such holder's address as the same appears on the stock register
of the Corporation; provided that neither the failure to give such notice nor
any defect therein shall affect the validity of the giving of notice for the
redemption of any share of
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PIK Preferred Stock to be redeemed except as to the holder to whom the
Corporation has failed to give said notice or except as to the holder whose
notice was defective. Each such notice shall state: (i) the redemption date;
(ii) the amount of shares of PIK Preferred Stock that are being redeemed and,
if less than all the shares held by such holder are to be redeemed from such
holder, the number of shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date. In the event that fewer than all the outstanding shares of PIK Preferred
Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
selected by lot or pro rata as may be determined by the Board of Directors,
except that in, any redemption of fewer than all the outstanding shares of PIK
Preferred Stock, the Corporation may redeem all shares held by any holders of a
number of shares not to exceed 100 as may be specified by the Corporation.
(b) Notice having been mailed as aforesaid, from and after the redemption
date (provided that on or prior to the redemption date the Corporation shall
have irrevocably deposited funds for such redemption in trust for the holders
of PIK Preferred Stock), dividends on the shares of PIK Preferred Stock so
called for redemption shall cease to accrue, and such shares shall no longer be
deemed to be outstanding and shall have the status of authorized but unissued
shares of Preferred Stock, unclassified as to series, and shall not be reissued
as shares of PIK Preferred Stock unless reissued as a stock dividend on shares
of PIK Preferred Stock, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the
redemption price) shall cease. Upon surrender in accordance with said notice of
the certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require and the
notice shall so state), such share shall be redeemed by the Corporation at the
redemption price. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
7. Voting Rights. (a) The holders of record of shares of PIK Preferred
Stock shall not be entitled to any voting rights except as hereinafter provided
in this paragraph 7 or as otherwise provided by law.
(b) (i) If at any time or times dividends payable (whether in cash or
shares of PIK Preferred Stock) on PIK Preferred Stock shall be in arrears and
unpaid on an amount equal to two full annual dividends (whether or not
consecutive) or if the Corporation shall have failed to discharge its Mandatory
Redemption Obligation, then the number of directors constituting the Board of
Directors, without further action, shall be increased by two and the holders of
PIK Preferred Stock shall have the exclusive right, voting separately as a
class, to elect the directors of the Corporation to fill such newly created
directorships, the remaining directors to be elected by the other class or
classes of stock entitled to vote therefor, at each meeting of stockholders
held for the purpose of electing directors.
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(ii) Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of PIK Preferred
Stock, called as hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at such annual
meetings or by the written consent of the holders of PIK Preferred Stock. Such
voting right shall continue until such time as all accrued dividends
accumulated on the PIK Preferred Stock shall have been paid in full, or the
Corporation has fulfilled its Mandatory Redemption Obligation, as the case may
be, at which time such voting right of the holders of PIK Preferred Stock shall
terminate, subject to revesting in the event of each and every subsequent
failure of the Corporation of the character described above.
(iii) At any time when such voting right shall have vested in the
holders of PIK Preferred Stock and if such right shall not already have been
initially exercised, a proper officer of the Corporation shall, upon the
written request of any holder of record of PIK Preferred Stock then
outstanding, addressed to the Secretary of the Corporation, call a special
meeting of holders of PIK Preferred Stock. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders of the
Corporation or, if none, at a place designated by the Secretary of the
Corporation. If such meeting shall not be called by the proper officer of the
Corporation within 30 days after the personal service of such written request
upon the Secretary of the Corporation, or within 30 days after mailing the same
within the United States, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the holders of record
of 10% of the shares of PIK Preferred Stock then outstanding may designate in
writing a holder of PIK Preferred Stock to call such meeting at the expense of
the Corporation, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders and shall be held
at the same place as is elsewhere provided in this paragraph (b)(iii) of this
Section 7. Any holder of PIK Preferred Stock which would be entitled to vote at
such meeting shall have access to the stock books of the Corporation for the
purpose of causing a meeting of holders of PIK Preferred Stock to be called
pursuant to the provisions of this paragraph. Notwithstanding the provisions of
this paragraph, however, no such special meeting shall be called during a
period within 90 days immediately preceding the date fixed for the next annual
meeting of stockholders.
(iv) At any meeting held for the purpose of electing directors at
which the holders of PIK Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of at least a majority of the then outstanding shares of PIK Preferred Stock
shall be required and be sufficient to constitute a quorum of such class for
the election of directors by such class. At any such meeting or adjournment
thereof (A) the absence of a quorum of the holders of PIK Preferred Stock shall
not prevent the election of directors other than those to be elected by the
holders of stock of such class and the absence of a quorum or quorums of the
holders of capital stock entitled to elect such other directors shall not
prevent the election of directors to be elected by the holders of PIK Preferred
Stock and (B) in the absence of a quorum of the holders of any class of stock
entitled to vote for the election of directors, a majority of the
15
holders present in person or by proxy of such class shall have the power to
adjourn the meeting for the elections of directors which the holders of such
class are entitled to elect, from time to time, without notice (except as
required by law) other than announcement at the meeting, until a quorum shall
be present.
(v) The term of office of all directors elected by the holders of PIK
Preferred Stock pursuant to paragraph (b)(i) of this Section 7 in office at any
time when the aforesaid voting rights are vested in the holders of PIK
Preferred Stock shall terminate upon the election of their successors at any
meeting of holders of PIK Preferred Stock for the purpose of electing
directors. Upon any termination of the aforesaid voting rights in accordance
with paragraph (b)(ii) of this Section 7, the term of office of all directors
elected by the holders of PIK Preferred Stock pursuant to paragraph (b)(i) of
this Section 7 then in office shall thereupon terminate and upon such
termination the number of directors constituting the Board of Directors, shall,
without further action, be reduced by two, subject always to the increase of
the number of directors pursuant to paragraph (b)(i) of this Section 7 in case
of the future right of holders of PIK Preferred Stock to elect directors as
provided herein.
(vi) In case of any vacancy occurring among the directors so elected,
the remaining director who shall have been so elected may appoint a successor
to hold office for the unexpired term of the director whose place shall be
vacant. If both directors so elected by the holders of PIK Preferred Stock
shall cease to serve as directors before their terms shall expire, the holders
of PIK Preferred Stock then outstanding may, at a special meeting of the
holders called as provided above, elect successors to hold office for the
unexpired terms of such directors whose places shall be vacant.
(c) Without the written consent of a majority of the outstanding shares of
PIK Preferred Stock or the vote of holders of a majority of the outstanding
shares of PIK Preferred Stock at a meeting of the holders of PIK Preferred
Stock called for such purpose, the Corporation will not authorize the issuance
of any Senior Securities or any securities exchangeable or convertible into any
Senior Securities or amend, alter or repeal any provision of this Certificate
of Designations (by merger or otherwise) so as to materially and adversely
affect the preferences, rights or powers of the PIK Preferred Stock. No other
series of the Corporation's preferred stock shall have the right to vote with
the PIK Preferred Stock as a single class on any matter.
(d) (i) The creation, authorization or issuance of any shares of any
Junior Securities or Parity Securities, or the creation, authorization or
issuance of any obligation or security convertible into or evidencing the right
to purchase any Junior Securities or Parity Securities, (ii) the creation of
any indebtedness of any kind of the Corporation, or (iii) the increase or
decrease in the amount of authorized capital stock of any class (including the
Preferred Stock, but excluding the PIK Preferred Stock) or any increase,
decrease or change in the par value of any such class other than the Preferred
Stock, shall not require the consent of the holders of PIK Preferred Stock and
shall not be deemed to affect adversely the rights, preferences, privileges and
voting rights of shares of PIK Preferred Stock.
16
(e) In exercising the voting rights set forth in this Section 7, each
share of PIK Preferred Stock shall have one vote per share. Except as otherwise
required by applicable law or as set forth herein, the shares of PIK Preferred
Stock shall not have any relative, participating, optional or other special
voting rights and powers and the consent of the holders thereof shall not be
required for the taking of any corporate action.
8. Reports. So long as any of the PIK Preferred Stock is outstanding, the
Corporation will furnish the holders thereof with the quarterly and annual
financial reports that the Corporation is required to file with the Securities
and Exchange Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934.
9. Conversion Rights. The holders of the PIK Preferred Stock shall be
subject to the following with respect to the conversion of the PIK Preferred
Stock into shares of Common Stock (the "Conversion Rights"):
(a) Automatic Conversion
(i) Each outstanding share of PIK Preferred Stock shall
automatically be converted into shares of Common Stock, at the PIK
Conversion Price (as defined in paragraph (b) below), immediately on
the same date that the closing occurs in respect of a firmly
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of shares of Common Stock for the account of the
Corporation in which the gross cash proceeds to the Corporation
(before underwriting discounts, commissions and fees) are not less
than $50,000,000 (a "Qualifying IPO").
(ii) Upon the occurrence of a Qualifying IPO, each of the
outstanding shares of PIK Preferred Stock shall be converted
automatically into shares of Common Stock without any further action
by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares
of PIK Preferred Stock are either delivered to the Corporation or its
transfer agent as provided below, or the holder notifies the
Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred
by it in connection with such certificates. Upon the occurrence of
such automatic conversion of the PIK Preferred Stock, the holders of
PIK Preferred Stock shall surrender the certificates representing
such shares at the office of the Corporation or any transfer agent
for the PIK Preferred Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate
or certificates for the number of shares of Common Stock into which
the shares of PIK Preferred Stock surrendered were convertible on the
date on which such automatic conversion occurred.
17
(iii) Notwithstanding anything to the contrary set forth herein,
as a condition to the Corporation's obligation to issue to each
holder of PIK Preferred a certificate or certificates for the number
of shares of Common Stock to which such holder is entitled, each such
holder (by acceptance of any certificate for shares of PIK Preferred
Stock) agrees to enter into a written agreement not to effect any
public sale or distribution of any shares of Common Stock issuable to
such holder, if and to the extent requested by the managing
underwriter for the Qualifying IPO during the 14 days prior to, and
during an up to 180-day period beginning on, the effective date of
the registration statement relating to the Qualifying IPO without the
written consent of such managing underwriter; provided that each such
holder has received written notice of such registration at least 5
business days prior to the anticipated beginning of the 14-day period
referred to above.
(b) PIK Conversion Price. The PIK Conversion Price shall be the initial
public offering price for each share of Common Stock in the Qualifying IPO on
the date on which the Corporation's registration statement relating thereto
first becomes effective.
(c) Mechanics of Conversion. Each holder of PIK Preferred Stock which has
been automatically converted into shares of Common Stock pursuant to this
Section 9 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the PIK
Preferred Stock. Thereupon, the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled and shall promptly pay
in cash or in additional shares of Common Stock, any declared and unpaid
dividends on the shares of PIK Preferred Stock being converted. Such conversion
shall be deemed to have been made at the close of business on the date of the
closing of the Qualifying IPO, and the Person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
(d) Fractional Shares. At the option of the Corporation, no fractional
shares of Common Stock shall be issued upon conversion of PIK Preferred Stock
and all shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of PIK Preferred Stock by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of any fractional
share, the Corporation may at its option, in lieu of issuing any fractional
share, pay cash equal to the product of such fraction multiplied by the initial
public offering of the Common Stock.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the PIK Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion
18
of all outstanding shares of the PIK Preferred Stock. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the PIK Preferred
Stock, the Corporation with take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(f) Notices. Any notice to a holder of shares of PIK Preferred Stock
pursuant to the provisions of this Section 9 shall be in writing and shall be
deemed effectively given: (i) upon personal delivery to the party to be
notified, (ii) when sent by confirmed facsimile if sent during normal business
hours of the recipient; if not, then on the next business day, (iii) five (5)
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to each holder of
record at the address of such holder appearing on the books of the Corporation.
10. General Provisions. (a) The term "Person" as used herein means any
corporation, limited liability company, partnership, trust, organization,
association, other entity or individual provided notwithstanding the foregoing,
for the purposes only of the provisions of paragraph (f) of Section 5 above,
the term "Person" as used in such paragraph means the definition of the term
"Person" found in Section 3(a)(9) of the Exchange Act.
(b) The term "outstanding", when used with reference to shares of stock,
shall mean issued shares, excluding shares held by the Corporation or a
subsidiary.
(c) The headings of the paragraphs, subparagraphs, clauses and subclauses
of this Certificate of Designations are for convenience of reference only and
shall not define, limit or affect any of the provisions hereof.
IN WITNESS WHEREOF, Vanguard Health Systems, Inc. has caused this
Certificate of Designations to be signed and attested by the undersigned this
31st day of January, 2000.
VANGUARD HEALTH SYSTEMS, INC.
By: /s/ Xxxxxx X. Xxxxx
-----------------------------------
Xxxxxx X. Xxxxx
Executive Vice President
ATTEST:
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------
Xxxxxx X. Xxxxxxx
Secretary
