SUBSCRIPTION AGREEMENT
First Choice Health Network, Inc.
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Gentlemen:
1.Subscription. Overlake Hospital Medical Center, a Washington nonprofit
corporation ("Overlake") hereby subscribes for and agrees to acquire
Fifty-Eight Hundred (5,800) shares of Class B common stock (the "Stock") of
First Choice Health Network, Inc., a Washington corporation (the "Company"),
and the Company hereby accepts such subscription, upon approval of a
majority of the Directors of the Company, all pursuant to the terms set
forth herein.
2. Purchase Price. In consideration for such Stock, Overlake shall pay a
total purchase price of $1,500,000, approximately $258.62 per share, payable
in cash, $1,000,000 upon tender of this Subscription Agreement to the
Company, $250,000 on December 15, 1997 and $250,000 on December 15, 1998.
3. Stockholder Restrictions. Except as otherwise specifically set forth in
this Subscription Agreement, Overlake hereby acknowledges, adopts, accepts
and agrees to be bound by all the terms and provisions of the Company's
Articles of Incorporation, Bylaws, the Agreement Among Class B Shareholders
and Affiliates(when executed), and all other corporate documents binding upon
or affecting Overlake or the Company's stockholders, which currently are the
Company's Articles of Incorporation and Bylaws, this Subscription Agreement,
and the Health Care Facility Services Agreement which Overlake will enter
into as a provider of services to the Company.
4. Overlake's Representations and Warranties. Overlake hereby represents
and warrants that:
(a) Overlake is a Washington non-profit corporation in good standing in the
state of Washington which has been granted tax exempt status as a charitable
organization under Section 501(c)(3) of the Internal Revenue Code, is not
formed for the specific purpose of acquiring the Stock, and has total assets
in excess of $5,000,000.00;
(b) The Stock is being acquired by Overlake for investment purposes only,
for the account of Overlake and not with the view to any resale or
distribution thereof, and Overlake is not participating, directly or
indirectly, in an underwriting of such Stock and will not take, or cause
to be taken, any action that would cause Overlake to be deemed an
"underwriter" of such Stock as defined in Section 2(11) of the Securities
Act of 1933, as amended;
(c) Overlake has received and has carefully read a copy of the Company's
Articles of Incorporation, its Bylaws, its most recent audited financial
statements, its 1996 10-Q report, and, in connection therewith, to the
best of Overlake's knowledge has not been denied access to any other
materials, books, records, documents, and information relating to the
Company, which has been requested, and has no reason to question the
accuracy of and supplement the information contained therein;
(d) Overlake acknowledges that Overlake has been offered an opportunity to
ask questions of, and receive answers from the Company, its President and
Chief Executive Officer, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and its Chief Financial Officer,
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of Overlake's knowledge all requests for such information has been fully
complied with by them;
(e) Overlake has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in the Company, or Overlake has, together with its legal and
financial advisors, such knowledge and experience in financial and business
matters that Overlake and its legal and financial advisors are capable of
evaluating the merits and risks of this investment;
(f) Overlake has adequate means of providing for the current needs of its
business and operations and possible contingencies, and Overlake has no
need for liquidity with respect to its investment in the Company;
(g) Overlake has been advised that an investment in the Company involves
substantial risk and Overlake is able to bear the economic risk of its
investment in the Company and can withstand a complete loss of such
investment; that there is no public market for the Company's Stock; and
that it may not be possible to liquidate the investment in the Stock in
case of an emergency;
(h) Overlake is authorized and otherwise duly qualified to acquire the Stock;
(i) Other than as specifically provided in this Agreement, the Company has
made no representations or warranties in connection with Overlake's purchase
of the Stock; and
(j) Prior to the time Overlake becomes committed to purchase the Stock,
Overlake knew of the restrictions on the Stock as described herein.
5. Company's Representations and Warranties. The Company hereby represents
that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington.
(b) The execution and delivery of this Subscription Agreement and
consummation of the transaction contemplated hereby have been or will be
presented for approval of the Board of Directors of the Company and, when
approved by the Board of Directors, the Subscription Agreement constitutes
a valid and legally binding obligation of the Company, and the Stock when
delivered will be duly authorized and issued.
(c) The Company has provided true and accurate copies of the following
documents to Overlake: current Articles of Incorporation and Bylaws of
the Company; a list of Class A shareholders of the Company (substantially
correct but because of the large number of physicians and frequent physician
changes is not representative as totally accurate); a list of Class B
shareholders of the Company; shareholder agreements with Class B
shareholders; form shareholder agreement with physicians; affiliation and
participation contracts with public hospital districts; tax returns for
the past three (3) years; audited financial statements for the past three
(3) year including the management representation letters; and unaudited
financial statements for the period ending October 31, 1996. To the
knowledge of the Chief Financial Officer, as of the execution date of this
Agreement, the documents show what each purports to show and substantially
correct; the unaudited financial position of the Company through the date
of this Agreement is signed by the Company is not materially adversely
different that the financial position of the Company as reflected in the
October 31, 1996 unaudited financial statements. To the knowledge of the
Chief Financial Officer the Company has substantially complied with and is
not in default in any material respect under any laws or agreements to which
the Company is a party.
(d) To the knowledge of the Chief Financial Officer, no lawsuits or
governmental investigations are currently pending against the Company and
there are nor lawsuits threatened against the Company but not yet filed
that are not covered by insurance.
6. Restrictions on Transferability of Interests. Although the Company is
a reporting company under Section 12 of the 1934 Securities and Exchange
Act, Overlake realizes that the Stock in the Company is not, and will not
be, registered under the Securities Act of 1933, as amended (the "Act") or
under the securities laws of any state. Overlake also understands that
the Company has not agreed to register the Stock in the Company for
distribution in accordance with the provisions of the Act or any applicable
state securities laws, and that the Company has not agreed to comply with
any exemption under the Act or any such laws for the resale of the Stock in
the Company. Hence, Overlake understands that by virtue of the provisions
of certain rules relating to "restricted securities" promulgated under the
Act, the interest in the Company which Overlake has subscribed for hereby
must be held indefinitely, unless and until subsequently registered under
the Act and applicable state securities laws or unless an exemption from
registration is available, in which case Overlake may still be limited with
respect to the extent to which such interest may be transferred.
7. Payment of Subscription. Enclosed herewith is a cashier's or certified
check payable to the order of the Company for the full amount currently due
on this subscription. If this subscription is rejected by Company's Board of
Directors, the funds delivered herewith shall be returned to Overlake,
without interest or discount, as soon as practicable. Until the Company's
Board of Directors approves this Subscription Agreement Overlake shall have
the right, by written notice to the Company, to terminate this Agreement and
obtain prompt repayment of the funds.
8. Withdrawal. Overlake may at any time, voluntarily withdraw from the
Company, as a shareholder, effective upon giving notice of its intent to
do so to the Company. In such event, Company shall repurchase Overlake's
Stock on the same terms and conditions as established pursuant to the Bylaws
of the Company then in effect. If Overlake withdraws before making all of
the subscription payments as provided in Section 2 above, all payments due
after the date of withdrawal shall be forgiven by the Company, and Overlake
shall have no obligation to make such payments. In the event Overlake
withdraws after agreeing to a capital call, but prior to the payment thereof,
Overlake shall not be required to pay such capital call payment.
9. Change of Control. Upon (a) transfer of fifty percent (50%) or more
ownership interest in Overlake; (b) change of fifty percent (50%) or more
control of Overlake (new directors or trustees selected for Overlake's
governing board, in the ordinary course of governance shall not be
considered a change of Control); or (c) transfer of the operations of
Overlake through the transfer of a substantial portion of Overlake's
assets to a person or entity who or which in not a Company shareholder,
the Company may elect to repurchase Overlake's Stock in Company. The
repurchase price shall be one-million dollars ($1,000,000) if the election
is made within three years of the date that the Stock is originally issued
to Overlake. If the election is made after such date, the repurchase price
for Overlake's Stock in the Company shall be the greater of the following
two amounts:
(a) The per share paid by the last Class B shareholder to acquire stock
in the Company or participating public hospital district to join the Company
prior to Overlake notifying the Company in writing of the transfer or change
of control; or
(b) Overlake's proportionate share of the Company's "net shareholder
equity" as calculated in the manner agreed to by the shareholders in the
Shareholders' Agreement, when executed.
If Overlake notifies Company in writing of a transfer described in this
paragraph 8, the Company shall have sixty (60) days from the date of such
notice to elect to repurchase Overlake's Stock in the Company. Article XVI
of the Bylaws states and Overlake agrees that, notwithstanding the exercise
of the Company's election under this paragraph 8, the Company may withhold
payment for the repurchase of shares until such time as the Board of the
Company determines that the Company is financially capable of making payment,
in which case, Overlake shall retain control of such shares until repurchase
payment is tendered.
As an alternative to exercising its election to repurchase under this
paragraph 8, the Company may allow admission of the new entity as a
shareholder; see Article XVI of the Bylaws.
10. Commitment of Competitiveness. Overlake warrants that the facility
rates and prices for other services offered to or in effect for the Company
and its subsidiaries for its various products are competitive with the rates
offered to other payors for the same or similar products.
This commitment is effective on the date of this Subscription Agreement
and will remain in effect so long as Overlake remains a Company shareholder
unless the commitment otherwise expires pursuant to paragraph 12 of this
Agreement.
11. Contract Negotiation and Administration. Overlake agrees that for
three (3) years after the date that the Stock is originally issued under
the terms of this Subscription Agreement, Overlake will act on its behalf
in any contract negotiations and in all contract administration relating
to agreements between Overlake and the Company or its subsidiaries and
Overlake further agrees that it will not assign, delegate, or otherwise
transfer such responsibility to any other person or entity without the
Company's express written consent.
12. Shareholder Agreement. Overlake agrees to execute an Agreement Among
Class B Shareholders and Affiliates, containing terms applicable in the
same manner to all such shareholders and affiliates, in substantially the
same form attached hereto as Exhibit A, on the condition that all other
Class B shareholders and affiliated or participating District hospitals
have executed the same agreement. If such an agreement is not executed by
and between all Class B shareholder and affiliated or participating District
hospitals within one-hundred and eighty (180) days of the issuance of the
Stock to Overlake under this Subscription Agreement, then the rights and
obligations of paragraph 10 of the Subscription Agreement shall automatically
expire and shall no longer be enforceable between the parties. Overlake
acknowledges and agrees that the repurchase price terms in paragraph 9 and
the contract negotiation and administration terms of paragraph 11 of this
Subscription Agreement shall supersede any inconsistent terms in the
Shareholder Agreement for three (3) years after the date the Stock is
originally issued under the terms of this Subscription Agreement.
13. Notice. Any notices or other communications in connection herewith
shall be sufficiently given if sent by registered or certified mail,
postage prepaid, and (i) if to the Company, at the address at the head of
this Subscription Agreement, and (ii) if to Overlake, at the address set
forth below, or (iii) at such other address as either Overlake or the
Company shall designate to the other by notice in writing.
14. Successors and Assigns. This Subscription Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to the
successors and assigns of the Company and to the personal and legal
representatives, heirs, guardians, successors, and permitted assignees of
Overlake. Overlake shall not assign its interest or any rights or
obligations hereunder without prior written consent of the Company.
15. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Washington and, to
the extent it involves any United States statute, in accordance with the
laws of the United States.
16. Survival. Company and Overlake agree that the rights, obligations
and remedies set forth in this Agreement are intended to and shall
survive the closing of the Stock acquisition contemplated hereunder and
shall remain fully binding and enforceable against the parties.
IN WITNESS WHEREOF, Overlake has executed this Subscription Agreement, this
___ 19th __ day of __December________, 1996.
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Tax Identification Number
Address:
Overlake Hospital Medical Center
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Attention: President and CEO
OVERLAKE HOSPITAL MEDICAL CENTER,
a Washington non-profit corporation
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Its President & CEO
By /s/ T. D.
Its Vice President & CFO
Accepted:
FIRST CHOICE HEALTH NETWORK, INC.
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President and CEO
EXHIBIT A
Proposed Elements of an Agreement Among Class B Shareholders (Hospitals)
and Contracting Public Hospital Districts
1. Contract Participation
All Class B shareholders and contracting public hospital districts
(hereafter collectively "Hospitals") shall have a right to participate,
on a fair, reasonable and equitable basis, in all Hospital provider
contracts with First Choice Health.
2. Change of Control
Upon (a) transfer of fifty percent (50% or more ownership interest in a
Hospital, (b) change of fifty percent (50%) or more control of a Hospital
(new directors, trustees, or commissioners selected for governing boards
in the ordinary course of governance shall not be considered a change of
control), or (c) transfer of the operations of the Hospital through the
transfer of a substantial portion of a Hospital's assets, to a person or
entity who or which is not a Company shareholder, the Company may, at its
election, repurchase the Hospital's Stock in the Company for a price equal
to the greater of the following two amounts:
(a) The per share price paid by the last Class B shareholder to acquire
stock in the Company or participating public hospital district to join
the Company prior to the Hospital notifying the Company in writing of the
transfer or change of control; or
(b) The Hospital's proportionate share of the Company's "net shareholder
equity" as calculated in the manner agreed to by the shareholders in the
Shareholders' Agreement, when executed.
When a Hospital notifies the Company in writing of a transfer or change of
control described in this paragraph 2, the Company shall have sixty (60)
days from the date of such notice to elect to repurchase Hospital's Stock
or participating interest in the Company. Article XVI of the Bylaws states
and Hospital agrees that, notwithstanding the exercise of the Company's;
election under this paragraph 2, the Company may withhold payment for the
repurchase of shares until such time as the Board of the Company determines
that the Company is financially capable of making payment, in which case,
the Hospital shall retain control of such shares and all rights under this
Agreement until the repurchase payment is tendered.
As an alternative to exercising its election to repurchase under this
paragraph 2, the Company may allow admission of the new entity as a
shareholder, which shall be the case if the Company does not elect to
purchase the shares as provided above; see Article XIV of the Bylaws.
Initial Here - /s/ GG Initial Here - /s/ KG
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3. Merger of Two or More First Choice Health Owner Hospitals
In the event two (2) or more First Choice Health Hospitals merge or
consolidate, the capital account of the surviving entity will reflect
the combined capital contributions of the merging Hospitals. The
surviving entity will hold the number of votes equal to those held by
the merged hospitals. Public hospital districts do not vote given they
do not hold stock in First Choice Health as a result of state law. To
assure minority Class B shareholder rights, an eighty percent (80%)
super-majority requirement will be required for liquidation, sale, merger
and similar transactions.
4. First Choice Health Hospital Acquires Non-First Choice Health Hospital
In the event a First Choice Health Hospital acquires a non-First Choice
Health Hospital, the new hospital will be extended a hospital provider
contract only following unanimous approval of the First Choice Health
Hospitals. If unanimous consent is received, the terms and conditions
of adding the new hospital will be as the Board of Directors determines.
5. Commitment of Competitiveness
Hospital warrants that the facility rates and prices for other services
offered to or in effect for First Choice Health Network, Inc., and its
subsidiaries for its various products are competitive with the rates
offered to other payors for the same or similar products.
This Commitment is effective on the date of this Agreement and will remain
in effect so long as Hospital remains a First Choice Health Network, Inc.,
shareholder or affiliated Hospital. Hospital agrees to renew this
Commitment at the request of First Choice Health Network, Inc., from time
to time.
6. Contract Negotiation and Administration
Hospital agrees that it will act on its own behalf in any contract
negotiation and in all contract administration relating to agreements
between the Hospital and First Choice Health Network, Inc., or its
subsidiaries and the Hospital further agrees that it will not assign,
delegate or otherwise transfer such responsibility to any other person
or entity without First Choice Health Network's express written consent.
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