AGREEMENT FOR THE
PURCHASE AND SALE OF ASSETS/
TRANSFER OF MEMBER RESPONSIBILITY
BY AND AMONG
SIERRA PRIMARY CARE MEDICAL GROUP, A MEDICAL CORPORATION
AND
PROSPECT MEDICAL HOLDINGS, INC.
AND
PRIMECARE INTERNATIONAL, INC.
AND
PRIMECARE MEDICAL GROUP OF
ANTELOPE VALLEY, INC.
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS/
TRANSFER OF MEMBER RESPONSIBILITY
THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS/TRANSFER OF MEMBER
RESPONSIBILITY ("Agreement") is made and entered into as of May 13, 1998, by and
among Sierra Primary Care Medical Group, A Medical Corporation, a California
professional corporation ("Sierra Group") and Prospect Medical Holdings, Inc., a
Delaware corporation ("Prospect Holdings"), on the one hand, and PrimeCare
Medical Group of Antelope Valley, Inc., a California professional corporation,
("Antelope Valley Group"), and PrimeCare International, Inc., a Delaware
corporation, ("PrimeCare International"), on the other hand.
RECITALS
This Agreement is made with reference to the following facts and
circumstances:
A. Antelope Valley Group is an independent practice association that
contracts with payors and providers with its principal office at 00000 00xx Xx.
Xxxx, Xxxxxxxxx, Xxxxxxxxxx (the "Practice"), is also known as Antelope Valley
Medical Group, and is solely owned by Xxxx Xxxxx, M.D.
B. PrimeCare International provides management and administrative
services to Antelope Valley Group pursuant to a long-term management services
agreement.
C. Sierra Group is a primary care medical group that contracts with
payors and providers in Southern California.
D. Prospect Medical Group, Inc., a California professional
corporation ("Prospect Group") owns all of the outstanding shares of Sierra
Group's capital stock.
E. Prospect Holdings, through a wholly owned subsidiary, Sierra
Medical Management, Inc., a Delaware corporation, provides management and
administrative services to Sierra Group pursuant to a long-term management
services agreement.
F. PrimeCare International desires to sell certain assets to
Prospect Holdings on the terms and conditions set forth in this Agreement.
G. Antelope Valley Group desires to assign all of its right, title,
and interest in certain primary care provider contracts and certain assets
associated therewith to Sierra Group and transfer responsibility for the members
of all health plans contracting with such providers through Antelope Valley
Group; and Sierra Group desires to assume such contracts and
1
responsibility, and to fully, faithfully and timely pay, perform and discharge
each and every obligation, term, condition, liability and covenant required to
be kept, performed and fulfilled by Antelope Valley Group under such contracts
as of the Effective Time, as defined below.
NOW, THEREFORE, in consideration of the covenants and conditions
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS/
TRANSFER OF RESPONSIBILITY FOR MANAGED CARE CONTRACTS
1.1 ASSETS. On the "Closing Date" (as defined below), PrimeCare
International shall sell and assign to Prospect Holdings, and Prospect Holdings
shall acquire from PrimeCare International, all of the assets listed in Exhibit
1.1 attached hereto. Further, PrimeCare International shall assign its contract
rights and, subject to Section 2.1 hereof, delegate its obligations related to
those contracts, agreements, and leases listed in Exhibit 1.1 ("PrimeCare
Contracts") to Prospect Holdings, and Prospect Holdings shall accept such
contract rights and, subject to Section 2.1 hereof, assume such obligations
(collectively, the assets and PrimeCare Contracts listed in Exhibit 1.1 are
referred to herein as "Assets").
1.2 TRANSFER OF MEMBERS/PROVIDER AGREEMENTS.
(a) On the Closing Date, Antelope Valley Group shall (i) assign
all of its right, title, and interest in all of the provider contracts listed in
Schedule "A" of Exhibit 1.2 to Sierra Group ("Provider Agreements"), (ii)
execute and deliver all documents and information requested of Antelope Valley
Group by all health plans ("Health Plans") listed in Schedule "B" of Exhibit
1.2, necessary to transfer responsibility for the members of the Health Plans
("Member Responsibility") currently contracting with said providers through
Antelope Valley Group or an affiliate of Antelope Valley Group ("Payor
Contracts"), (iii) transfer and convey certain assets associated therewith as
listed in Exhibit 1.2 to Sierra Group ("Antelope Valley Group Assets"); and on
the Closing Date, effective as of the Effective Time, Sierra Group shall agree
to assume the Provider Agreements, accept the transfer of Member Responsibility,
and acquire the Antelope Valley Group Assets. As of the Effective Time, Sierra
Group shall, subject to Section 2.2, (i) fully, faithfully and timely pay,
perform and discharge each and every obligation, term, condition, liability and
covenant required to be kept, performed and fulfilled by Antelope Valley Group
under the Provider Agreements, and (ii) shall accept the transfer of Member
2
Responsibility in accordance with the terms and conditions of payor agreements
with such Health Plans.
(b) Notwithstanding the definition of the Effective Time to the
contrary, Antelope Valley Group shall transfer to Sierra Group, and Sierra Group
shall accept, the right to, and responsibility for, any shared risk pool bonus
funds due from, or to be reimbursed to, health maintenance organizations or
hospitals as of 12:01am, May 1, 1998. Other than such risk pool bonus funds,
Sierra Group shall receive all capitation payments from Health Plans in
accordance with its payor contracts with such Health Plans, and shall pay all
claims to providers, attributable to dates of service on or after the Effective
Time.
ARTICLE 2
LIABILITIES
2.1 ASSUMED LIABILITIES/PROSPECT HOLDINGS. Prospect Holdings shall
assume only those liabilities of PrimeCare accruing on or after the Effective
Time, as listed on Exhibit 2.1.
2.2 ASSUMED LIABILITIES/SIERRA GROUP. Sierra Group shall assume only
those liabilities of Antelope Valley Group accruing on or after the Effective
Time, as listed on Exhibit 2.2.
ARTICLE 3
PURCHASE PRICE OF ASSETS
3.1 CONSIDERATION: PAYMENT OF PURCHASE PRICE.
(a) Subject to the terms and conditions of this Agreement and in
full consideration of the sale and transfer of the Assets, Prospect Holdings
shall pay to PrimeCare International a total purchase price in cash and stock,
as set forth below (the "Asset Purchase Price"), as follows:
(i) Prospect Holdings shall pay Four Hundred Seventy-Five
Thousand ($475,000.00) ("PrimeCare Down Payment") to PrimeCare International at
the Closing, as defined in Section 7 herein, payable by way of a wire transfer
of immediately available funds into a deposit account designated in writing by
PrimeCare International prior to the Closing Date;
(ii) Prospect Holdings will execute and deliver to PrimeCare
International at the Closing, a promissory note in the principal amount of Five
Hundred Thousand Dollars
3
($500,000.00), made payable to PrimeCare International, with interest thereon
payable at 8% per annum, and principal due in two (2) equal installments of Two
Hundred Fifty Thousand Dollars ($250,000.00) each, together with accrued
interest thereon, payable at ninety (90) days and one hundred eighty (180) days
from the Closing, the form of which is attached hereto as Exhibit 3.1(a)(ii)
(the "Note") (the obligations of Prospect Holdings under the Note are
subordinated, in accordance with that certain Subordination Agreement of even
date herewith, to the obligations under a note and security agreement made by
Prospect Holdings in favor of Imperial Bank, a California banking corporation);
and
(iii) Prospect Holdings will issue to PrimeCare
International, two hundred thousand (200,000) shares of Prospect Holdings's
$0.01 par value common stock, as adjusted herein (the "Shares"). In the event
that during the Equitable Adjustment Period (as defined below), Prospect
Holdings issues any shares of common stock at a price less than Five Dollars
($5.00) per share or issues any other security that can be converted into common
stock (including, but not limited to, preferred stock, warrants, or options)
with a strike price/exercise price/effective conversion price of less than Five
Dollars ($5.00) per share ("Market Price or Exercise Price"), then Prospect
Holdings shall immediately issue to PrimeCare International the number of shares
of common stock (at no additional consideration) determined as follows
("Equitable Adjustment"): (a) one million (1,000,000) divided by the Market
Price or Exercise Price, less (b) two hundred thousand (200,000). In the event
of further issuances of common stock or additional securities as described above
during the Equitable Adjustment Period, as to which Equitable Adjustment is
required, the Shares shall be subject to further Equitable Adjustment using the
same formula except that two hundred thousand (200,000) shall be replaced by the
total number of shares then issued to, and held by, PrimeCare International.
For purposes of this Section 3.1(a)(iii), "Equitable Adjustment Period" shall
mean the period beginning on the Closing Date and ending on the earlier of: (i)
three (3) years from the Closing Date, or (ii) the date of an initial public
offering of Prospect Holdings stock ("IPO"). In the event of an IPO, Prospect
Holdings shall use reasonable efforts to avoid any restrictions on PrimeCare
International to freely transfer or sell the Shares, except as required by
Prospect Holdings lender or underwriters. Notwithstanding the above, the
following issuances of securities shall not result in an Equitable Adjustment:
(i) the issuance of common stock pursuant to a conversion subsequent to the
Closing of convertible securities issued prior to the Closing; (ii) the
issuances of securities in consideration, in part or in whole, of services
previously rendered or to be rendered (including, without limitation, securities
issued as part of an employee incentive plan), so long as such issuances during
the Equitable Adjustment Period total less than five percent (5%) of the issued
and outstanding stock of Prospect Holdings on the Closing Date; and
4
(iii) the issuance of additional securities by reason of a third-party's
equitable adjustment rights.
(b) Subject to the terms and conditions of this Agreement and in
full consideration of the transfer of Member Responsibility, the transfer and
assignment of the Provider Agreements, and the transfer and sale of Antelope
Valley Group Assets, Sierra Group shall pay to Antelope Valley Group a total
acquisition price of Twenty-Five Thousand Dollars ($25,000.00) ("Contract
Acquisition Price") at the Closing, as defined in Section 7 herein, payable by
way of a wire transfer of immediately available funds into a deposit account
designated in writing by PrimeCare International prior to the Closing Date.
(c) The parties acknowledge that Xxxxx Xxxxxx, M.D. ("Xx.
Xxxxxx") has entered into that certain Affiliation Agreement dated April 1,
1997, that certain Provider Service Agreement dated January 1, 1998, and that
certain Consent to Assignment of Provider Service Agreement and Affiliation
Agreement dated February 25, 1998. The parties agree that, notwithstanding the
assignment of the Affiliation Agreement as set forth in this Agreement,
PrimeCare International shall continue to be responsible for payments made to
Xx. Xxxxxx referred to in the Affiliation Agreement as "Variable Consideration
Fee", which PrimeCare International and Prospect agree shall be equal to
Twenty-Five Thousand Dollars ($25,000.00) (the "Prepayment Fee"). On the date
of the first payment due under the Note by Prospect Holdings ("First Date"),
Prospect Holdings shall pay to PrimeCare International an amount computed as
follows: the Prepayment Fee multiplied by a fraction, the numerator of which is
(i) the total number of members assigned to Xx. Xxxxxx by Antelope Valley Group
or Sierra Group on the First Date, less (ii) one thousand nine hundred
twenty-one (1,921) (being the number of members assigned to Xx. Xxxxxx by
Antelope Valley Group as the base for determining the Variable Consideration
Fee), and the denominator of which is six hundred (600). On the date of the
second (final) payment due under the Note by Prospect Holdings, Prospect
Holdings shall pay to PrimeCare International an amount computed as set forth
above, less the amount of any payment previously made as set forth above.
Prospect Holdings and Sierra shall provide to PrimeCare International and
Antelope Valley Group capitation reports and enrollment data regarding the total
members assigned to Xx. Xxxxxx during the periods set forth above.
3.2 FAIR MARKET VALUE. The parties agree that the Asset Purchase
Price reflects the fair market value of the Assets, and the Contract Acquisition
Price reflects the fair market value of the transfer of Member Responsibility,
the Provider Agreements, and Antelope Valley Group Assets. The parties agree no
consideration is or will be paid for the value of any referrals (direct or
indirect) to or from Sierra Group or Antelope Valley Group, or any of their
affiliates.
5
3.3 SALES AND TRANSFER TAXES. Any sales and transfer taxes related to
this transaction shall be borne by PrimeCare International or Antelope Valley
Group, as the case may be.
3.4 THE SHARES. PrimeCare International agrees and acknowledges that
the Shares to be issued pursuant to this Agreement are "restricted securities,"
as that term is defined under the Securities Act of 1933, as amended, and are
not freely tradeable. Prior to issuing the Shares to PrimeCare International,
PrimeCare International and Prospect Holdings will execute a Stockholder
Representation Agreement in the form of that attached hereto as Exhibit 3.4, in
order to comply with applicable federal and State securities laws. The
Stockholder Representation Agreement shall contain mutually acceptable
representations, warranties and covenants, including an agreement not to sell,
transfer, or make any other disposition of the Shares unless and until (a) such
Shares are included in a registration statement or a post-effective amendment
under the Securities Act which has been filed by Prospect Holdings and declared
effective by the SEC, or (b) in the opinion of counsel for Prospect Holdings, no
such registration statement or post-effective amendment is required, or (c) the
SEC has first issued a "no action" letter regarding any such proposed
disposition of the Shares. Further, the Stockholder Representation Agreement
will contain mutually acceptable registration rights.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF PRIMECARE INTERNATIONAL AND ANTELOPE VALLEY GROUP
Antelope Valley Group and PrimeCare International, as the case may be,
represent, warrant and covenant to Prospect Holdings and Sierra Group, as
applicable, that the statements in this Section 4 are correct and complete as of
the date hereof.
4.1 ORGANIZATION. Antelope Valley Group is a California professional
medical corporation duly organized, validly existing and in good standing under
the laws of the State of California. Xxxx Xxxxx, M.D., is the sole shareholder
of Antelope Valley Group. Antelope Valley Group has all requisite authority to
own, lease, and operate the Antelope Valley Group Assets, and to perform and
operate under the Provider Agreements and Payor Contracts, and to carry on its
business as currently being conducted. PrimeCare International is a Delaware
corporation duly organized, validly existing and in good standing, and is
qualified to do business in the State of California. PrimeCare International
has all requisite authority to own, lease, and operate the Assets and to carry
on its business as currently being conducted.
6
4.2 AUTHORIZATION. Antelope Valley Group and PrimeCare International
each has the corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. All actions on the part of
Antelope Valley Group and PrimeCare International, as the case may be, necessary
for the authorization, execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, has been or will be
taken prior to the Closing Date, and this Agreement (including exhibits,
schedules and the ancillary agreements) constitutes the legal, valid and binding
obligation of PrimeCare International and Antelope Valley Group, as the case may
be, enforceable in accordance with its terms.
4.3 NO CONSENT REQUIRED. Neither the execution and delivery of this
Agreement by PrimeCare International nor the performance by it of its
obligations under this Agreement requires the consent of any third party that
will not have been obtained and delivered to Prospect Holdings prior to the
Closing Date. Further, neither the execution and delivery of this Agreement by
Antelope Valley Group nor the performance by it of its obligations under this
Agreement requires the consent of any third party that will not have been
obtained and delivered to Sierra Group prior to the Closing Date.
4.4 NO VIOLATION OF OTHER AGREEMENTS. Neither this Agreement nor any
of the transactions contemplated hereunder violates, conflicts with or results
in a breach of, or shall violate, conflict with or result in a breach of any
lease, contract, document, understanding, agreement or instrument to which
Antelope Valley Group or PrimeCare International is a party or by which any of
them may be bound, or any other lease, contract, document, understanding,
agreement or instrument affecting Antelope Valley Group or PrimeCare
International, or the Assets, the Antelope Valley Group Assets, the Payor
Contracts, or the Provider Agreements.
4.5 NO DEFAULT. Neither Antelope Valley Group nor PrimeCare
International is in default under the terms of any lease, contract, document,
understanding, agreement or instrument pertaining to the Assets, the Antelope
Valley Group Assets, the Payor Contracts, or the Provider Agreements, as the
case may be, nor has any event occurred that shall constitute a default by
Antelope Valley Group or PrimeCare International under any of the same following
the passage of time or consummation of any of the transactions contemplated
hereunder, nor has Antelope Valley Group or PrimeCare International received any
notice of any default under any of the same. No acceleration or other right to
accelerate, terminate, modify, cancel, create a security interest, or otherwise
change any existing arrangement will be created as a result of the consummation
of any of the transactions contemplated hereunder.
7
4.6 FINANCIAL STATEMENTS, BOOKS AND RECORDS. Prior to the Closing
Date, PrimeCare International, as manager of the Practice, will have delivered
to Sierra Group copies of all available financial statements, books, and records
related to the operations of Antelope Valley Group, and PrimeCare
International's management of the Practice of Antelope Valley Group, including
an unaudited statement of operations for the year ended December 31, 1997, and
the months of January and February, 1998 (the "Financial Statements"). The
Financial Statements fairly and accurately represent the financial condition of
Antelope Valley Group and PrimeCare International's management of the Practice
of Antelope Valley Group, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby, and, to PrimeCare International's and Antelope Valley Group's
actual knowledge, do not or will not contain any statement that is false or
misleading with respect to any material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The parties hereto have requested Ernst & Young to audit the
financial books and records related to Antelope Valley Group and PrimeCare
International's management of the Practice of Antelope Valley Group (the
"Audit"). Antelope Valley Group and PrimeCare International agree to provide
all facilities, records, and personnel necessary to complete the Audit. The
cost of the Audit shall be paid by Prospect Holdings; provided, however, that
PrimeCare International shall reimburse Prospect Holdings Seventeen Thousand
Five Hundred Dollars ($17,500.00) to be paid through a credit of the last
payment of the Note.
4.7 CONDUCT OF PRACTICE AND NO MATERIAL CHANGES. Between the date of
the execution of this Agreement and the Closing, PrimeCare International shall
maintain and preserve the Assets in good condition and repair (normal wear and
tear excepted), and prevent the imposition of any additional Liens (as defined
below) on the Assets. Between the date of the execution of this Agreement and
the Closing, Antelope Valley Group shall (i) perform under the Payor Contracts
and Provider Agreements in substantially the same manner as has previously been
done, and (ii) maintain and preserve the Antelope Valley Group Assets, Payor
Contracts and Provider Agreements and its relationships with all patients and
payors, and (iii) prevent the imposition of any additional Liens on the Antelope
Valley Group Assets, Payor Contracts or Provider Agreements.
To the actual knowledge of PrimeCare International, as manager of
the Practice of Antelope Valley Group, since the date of the Financial
Statements there has not been, or will not have been, and as of the Closing
there shall not be:
(a) Any material adverse change in the financial or business
condition of Antelope Valley Group or the Practice.
8
(b) Any material change in the manner in which the Practice has
been conducted.
(c) Any voluntary or involuntary sale, assignment, license or
other disposition, of any kind, of the Assets, Antelope Valley Group Assets,
Provider Agreements, or Member Responsibility, except as contemplated by this
Agreement.
(d) Any material debts, liabilities or obligations of any kind,
whether absolute or contingent, due or to become due, or any security interests,
liens, or encumbrances, incurred by Antelope Valley Group or PrimeCare
International, as the case may be, in connection with the Practice except for:
(i) current liabilities incurred for services rendered or
goods supplied in the ordinary course of the operations of the Practice;
(ii) liabilities on account of taxes and governmental
charges not yet due, but not penalties, interest or fines in respect thereof; or
(iii) obligations or liabilities incurred by virtue of the
execution of this Agreement other than as expressly described herein.
4.8 TAXES. To Antelope Valley Group's and to PrimeCare
International's actual knowledge, there are no delinquent federal or state
corporate income or franchise taxes or any federal, state or local assessments
due or owing by Antelope Valley Group or PrimeCare International with respect to
the Practice. To Antelope Valley Group's actual knowledge, there are no
actions, suits, proceedings, investigations, audits, claims or liens now pending
against or related to Antelope Valley Group.
4.9 TITLE TO ASSETS. At the Closing, PrimeCare International shall
deliver title to the Assets, free and clear of all security interests,
encumbrances, covenants and restrictions, and Antelope Valley Group shall
deliver title to the Antelope Valley Group Assets, and assign and deliver the
Provider Agreements, free and clear of all security interests, encumbrances,
covenants and restrictions (collectively, "Liens"). Further, at the Closing,
the transfer of Member Responsibility by Antelope Valley Group to Sierra Group
shall not be limited or restricted in any way by security interests,
encumbrances, covenants or restrictions of Antelope Valley Group.
4.10 CONTRACTS.
(a) PrimeCare International has furnished to Prospect Holdings,
for Prospect Holdings' inspection and review, true and complete copies of all
PrimeCare Contracts. The
9
PrimeCare Contracts include all of the contracts pursuant to which PrimeCare
International provides management services to Antelope Valley Group. Antelope
Valley Group has furnished to Sierra Group, for Sierra Group's inspection and
review, true and complete copies of all Provider Agreements.
(b) The PrimeCare Contracts, the Payor Contracts, and the
Provider Agreements will remain in full force and effect in accordance with
their terms as of the Closing Date. Neither PrimeCare International nor
Antelope Valley Group nor any other party to any PrimeCare Contract, Payor
Contract or Provider Agreement, as the case may be (including, but not limited
to, any landlord), is in default, or alleged to be in default thereunder, and
there exists no condition or event which, with the giving of notice or the lapse
of time or otherwise, would constitute such a default by PrimeCare
International, Antelope Valley Group, or by any other party to any such
contracts or agreements. All of the Payor Contracts and Provider Agreements are
valid, legally binding, and enforceable in accordance with their terms by
Antelope Valley Group. All of the PrimeCare Contracts are valid, legally
binding, and enforceable in accordance with their terms by PrimeCare
International.
4.11 CAPITATION REPORTS. To PrimeCare International's actual
knowledge, as the manager of the Practice of Antelope Valley Group, the
capitation reports dated March 25, 1998, attached hereto as Exhibit 4.11, have
been prepared from the reports of the managed care plans, and are true,
accurate, and complete. To PrimeCare International's actual knowledge, as
manager of the Practice of Antelope Valley Group there has not been, or will not
have been, and as of the Closing there shall not be any material adverse change
(in the amount of five percent (5%) or more) in the number of members for which
Antelope Valley Group is responsible as set forth in such capitation reports,
except for those matters specifically set forth in Exhibit 4.11. PrimeCare
International agrees to deliver to Prospect Holdings all capitation reports
prepared after the date of execution of this Agreement, and PrimeCare
International shall at such time certify that, to its actual knowledge, such
reports are true, accurate and complete, or shall describe any limitations to
such certification.
4.12 EMPLOYEES.
(a) All current employees of PrimeCare International located in
Antelope Valley, California and engaged in management of the Practice of
Antelope Valley Group are employees "at will". Antelope Valley Group has no
employees.
(b) To the actual knowledge of PrimeCare International: (i)
there are no threats of strikes or work stoppages by any of such employees, (ii)
PrimeCare International is not a party to any contract or agreement with a labor
union or
10
any local or subdivision thereof, and has not been charged with any unresolved
unfair labor practices, (iii) there are no labor grievances or any present union
organizing activity among any of its employees, (iv) there are no workers'
compensation, EEOC or ADA claims against PrimeCare International related to such
employees.
(c) As of the Closing, there will be no material liability of
PrimeCare International for any employee benefit or unpaid compensation, tax
withholdings, Federal Insurance Contribution Act and disability payments of any
kind with respect to any such employees or independent contractor engaged by
PrimeCare International providing services to Antelope Valley Group, including
without limitation, vacation pay, sick leave pay, personal day pay, severance
pay and bonus pay.
4.13 NO LITIGATION; INSURANCE. Except as set forth in Exhibit 4.13,
to PrimeCare International's and Antelope Valley Group's actual knowledge, as
the case may be, there is no pending or threatened litigation, unasserted claim,
or governmental investigation, relating to the Assets, the Practice, the
Antelope Valley Group Assets, the Payor Contracts, or the Provider Agreements.
PrimeCare International or Antelope Valley Group, as the case may be, has
adequately provided insurance for such claims, if any, and, until the Closing
Date, will continue to maintain insurance against all liabilities, claims and
risks against which it is customary to insure.
4.14 VIOLATION OF LAWS. To PrimeCare International's and Antelope
Valley Group's actual knowledge, as the case may be, neither entity is in
violation of any law, rule, regulation or administrative or judicial order
pertaining to the Assets , the Antelope Valley Group Assets, the Payor
Contracts, or the Provider Agreements, and neither the execution, delivery nor
performance of this Agreement, or the consummation of any of the transactions
contemplated hereby, conflicts with, violates or results in a breach of any law,
rule, regulation or administrative judicial order.
4.15 NO BROKERS OR FINDERS. Except for Legend Capital Corporation,
neither PrimeCare International nor Antelope Valley Group has incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees,
or commissions with respect to the transactions contemplated by this Agreement,
and if any such liability has been incurred, such liability shall be and remain
the sole responsibility of PrimeCare International and Antelope Valley Group,
and PrimeCare International or Antelope Valley Group, as the case may be, shall
indemnify, defend and hold Prospect Holdings and Sierra Group harmless from and
against any and all liabilities, losses, damages, claims, causes of action,
costs and expenses (including without limitation, reasonable attorneys' fees),
arising out of or relating to such liability.
11
4.16 NO BANKRUPTCY PROCEEDINGS. Neither PrimeCare International nor
Antelope Valley Group has (i) made a general assignment for the benefit of
creditors,(ii) filed any voluntary petition in bankruptcy or suffered the filing
of an involuntary petition by its creditors,(iii) suffered the appointment of a
receiver to take possession of all or substantially all of its assets, property
or business,(iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets, property or business,(v) admitted in writing
its inability to pay its debts as such debts become due, or (vi) made an offer
of settlement, extension or compromise to its creditors generally.
4.17 LICENSURE AND REIMBURSEMENT. As of the date hereof, to the
actual knowledge of Antelope Valley Group and PrimeCare International, as the
case may be:
(a) All physicians contracting with Antelope Valley Group to
provide medical services are duly licensed to practice his or her profession in
the State of California without restriction; and Antelope Valley Group has all
licenses, permits, approvals and authorizations necessary for the conduct of its
business as presently conducted.
(b) Antelope Valley Group is not currently prevented from
participating in the Medicare and Medicaid programs or in any other applicable
governmental health care payment programs. There are no federal or state
investigations pending or contemplated that will have an impact upon Antelope
Valley Group's reimbursement status or Antelope Valley Group's ability to
operate a medical practice in California.
(c) All billing practices by Antelope Valley Group applicable to
all third parties including, but not limited to, private insurance companies,
have been true, fair and correct and in compliance with all applicable laws,
regulations, and policies of all such third party payors, and Antelope Valley
Group has not billed for or received any payment or reimbursement in excess of
amounts permitted by law.
(d) Antelope Valley Group, PrimeCare International,and their
respective agents have not directly or indirectly (i) offered to pay or
solicited any remuneration, in cash or in kind, to, or made any financial
arrangements with, any past or present customers, past or present suppliers,
contractors, third parties, or third party payors of Antelope Valley Group in
order to obtain business or payments from such persons, other than pursuant to,
and in accordance with, the Payor Contracts and Provider Agreements, and other
than entertainment activities in the ordinary and lawful course of business;(ii)
given or received, or agreed to give or receive, or is aware that there has been
made or that there is any agreement to make or receive, any gift or gratuitous
payment of any kind, nature or description (whether in money, property or
12
services) to any customer or potential customer, supplier or potential supplier,
contractors, third party payor or any other person other than in connection with
promotional, entertainment, or charitable activities in the ordinary and lawful
course of business;(iii) made or agreed to make, or is aware that there has been
made or that there is any agreement to make any contribution, payment or gift of
funds or property to, or for the private use of, any governmental official,
employee or agent where either the contribution, payment or gift or the purpose
of such contribution, payment or gift is or was illegal under the law of the
United States or under the laws of any state thereof or any other jurisdiction
under which such payment, contribution or gift was made;(iv) established or
maintained any unrecorded fund or asset for any purpose or made any false or
artificial entries on any of its books or records for any reason; or (v) made or
agreed to make or is aware that there has been made or that there is any
intention to make, any payment to any person with the intention or understanding
that any part of such payment would be used for any purpose other than that
described in the documents supporting such payment.
(e) Neither Antelope Valley Group nor its agents is a party to
any contract, lease, agreement or arrangement, including but not limited to any
joint venture or consulting agreement with any physician, hospital, nursing
facility, home health agency or other person who is in a position to make,
receive or influence referrals to or from Antelope Valley Group, to provide
services, lease space, lease equipment or engage in any other venture or
activity, other than pursuant to, and in accordance with, the Payor Contracts
and Provider Agreements.
4.18 CONFIDENTIALITY. To Antelope Valley Group's actual knowledge, it
has maintained, and agrees to continue to maintain, the confidentiality of all
patient records as required by and in conformance with all applicable state and
federal laws and regulations. Antelope Valley Group shall, at Closing, transfer
custody of any patient records in its possession to Sierra Group in accordance
with applicable state and federal laws and regulations.
4.19 BULK SALES. Neither PrimeCare International or Antelope Valley
Group is an enterprise subject to Division 6 of the Commercial Code of
California, and the transactions contemplated hereby are not subject to Division
6 of the Commercial Code of California.
4.20 INSPECTIONS. Exhibit 4.20 sets forth accurately and fully
describes (i) all inspections of the Assets or the Practice by any governmental
agency or any consultant at any time during the previous five (5) years;(ii) all
matters that were noted by any and all such governmental agency or consultant as
requiring correction or modifications that were requested or
13
recommended; and (iii) the present status of each such noted matter.
4.21 NO UNTRUE STATEMENTS. (i) Neither Antelope Valley Group nor
PrimeCare International, as the case may be, has made any untrue statement or
representation in connection with this Agreement,(ii) all written instruments or
documents transferred or delivered and/or given to Prospect Holdings or Sierra
Group by or from Antelope Valley Group or PrimeCare International, as the case
may be, are true, correct and complete copies of what they purport to be,(iii)
to their actual knowledge, neither Antelope Valley Group nor PrimeCare
International has failed to state or disclose any material fact in connection
with the transactions contemplated by this Agreement, and (iv) neither Antelope
Valley Group nor PrimeCare International, as the case may be, knows of any fact
or has misrepresented any facts concerning its ability, financial or otherwise,
to consummate the transactions contemplated by this Agreement or that would
otherwise materially adversely affect Prospect Holding's decision to acquire the
Assets, or Sierra Group's decision to acquire the Antelope Valley Group Assets,
assume the Provider Agreements, and accept Member Responsibility.
4.22 NAMES. Neither PrimeCare International nor Antelope Valley Group
has operated during the past five (5) years under any name other than as set
forth in the preamble above.
4.23 COVENANT NOT TO COMPETE.
(a) The parties acknowledge and agree that Antelope Valley Group
and PrimeCare International, as the case may be, are parties to certain
covenants not to compete related to that certain Stock Purchase Agreement dated
June 14, 1996 ("Provider Covenants"). Such Provider Covenants are not
assignable to Sierra Group or Prospect Holdings. However, in the event of an
alleged breach of a Provider Covenant by a party at or after the Effective Time
and upon the written request of Prospect Holdings, PrimeCare International shall
exercise any and all remedies available to PrimeCare International at the
direction and supervision of Prospect Holdings, although PrimeCare International
makes no representation or warranty regarding the successfulness of any
litigation or PrimeCare International's legal right to enforce such covenants.
PrimeCare International and Prospect Holdings shall mutually agree upon the
costs and fees to be incurred and the actions to be taken in the exercise of
such remedies, and Prospect Holdings agrees to pay all costs (including all
attorneys' fees) and all fees associated with the exercise of remedies by
PrimeCare International in advance. In the event, PrimeCare International and
Prospect Holdings cannot mutually agree upon the actions to be taken in the
exercise of the remedies discussed above, PrimeCare International shall
undertake all actions instructed by Prospect Holdings so long as Prospect
Holdings pays all costs (including
14
attorneys' fees) and all fees associated with such instructions in advance, and
so long as such actions do not, in the reasonable opinion of PrimeCare
International, materially and adversely affect the financial condition of
PrimeCare International. The parties hereto acknowledge and agree that a breach
by PrimeCare International of the obligation to enforce such covenants will
cause irreparable damage to Prospect Holdings, the exact amount of which will be
difficult to ascertain, and that remedies at law for any such breach will be
inadequate. Accordingly, PrimeCare International agrees that if it breaches the
obligation to enforce such covenants as set forth above, then Prospect Holdings
shall be entitled to injunctive relief, and PrimeCare International agrees not
to assert in any proceeding that Prospect Holdings has an adequate remedy at
law.
(b) The parties further acknowledge and agree that litigation has
been undertaken to enforce the above-described covenants not to compete, and
PrimeCare International agrees, at its sole cost and expense, to pursue such
litigation as it reasonably determines. Any recovery from such litigation shall
be the sole property of PrimeCare International. Prospect Holdings and Sierra
Group agree to reasonably cooperate (including making officers and directors
familiar with this Agreement available to testify) with PrimeCare International
in such litigation, in order to assist PrimeCare International in establishing
the damages (including the reduction in the value of the assets and rights
transferred in this Agreement) caused by (i) the loss of revenue related to the
actions of the physicians violating the above-described covenant, (ii) the risk
of instability to the Practice caused by the withdrawal of such physicians,
(iii) the damage caused by the loss of a large percentage of available
pediatricians to the Practice, and (iv) the overall damages caused by the breach
of the above-described covenant not to compete by such physicians.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF SIERRA GROUP AND PROSPECT HOLDINGS
Sierra Group and Prospect Holdings, as the case may be, represent,
warrant and covenant to PrimeCare International and Antelope Valley Group, as
applicable, that the statements in this Section 5 are correct and complete as of
the date hereof:
5.1 ORGANIZATION. Sierra Group is a professional medical corporation
validly existing and in good standing under the laws of the State of California.
Sierra Group has all requisite authority to own, lease, and operate its assets
and to carry on its business as currently being conducted. Prospect Holdings is
a Delaware corporation duly organized, validly existing and in good standing,
and is qualified to do business in
15
the State of California. Prospect Holdings has all requisite authority to own,
lease, and operate its assets and to carry on its business as currently being
conducted.
5.2 AUTHORITY. Sierra Group and Prospect Holdings each has the
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All action on the part of Sierra Group or
Prospect Holdings, as the case may be, necessary for the authorization,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby has been or will be taken prior to the
Closing Date, and this Agreement (including exhibits, schedules and the
ancillary agreements) constitutes the legal, valid and binding obligation of
Prospect Holdings and Sierra Group, as the case may be, enforceable in
accordance with its terms.
5.3 NO CONSENT REQUIRED. Neither the execution and delivery of this
Agreement by Prospect Holdings nor the performance by it of its obligations
under this Agreement requires the consent of any third party that will not have
been obtained and delivered to PrimeCare International prior to the Closing
Date. Further, neither the execution and delivery of this Agreement by Sierra
Group nor the performance by it of its obligations under this Agreement requires
the consent of any third party that will not have been obtained and delivered to
Antelope Valley Group prior to the Closing Date.
5.4 NO VIOLATION OF OTHER AGREEMENTS. Neither this Agreement nor any
of the transactions contemplated hereunder violates, conflicts with or results
in a breach of, or shall violate, conflict with or result in a breach of any
lease, contract, document, understanding, agreement or instrument to which
Sierra Group or Prospect Holdings is a party or by which any of them may be
bound, or any other lease, contract, document, understanding, agreement or
instrument affecting Sierra Group or Prospect Holdings.
5.5 NO DEFAULT. No acceleration or other right to accelerate,
terminate, modify, cancel, create a security interest, or otherwise change any
existing arrangement will be created as a result of the consummation of any of
the transactions contemplated hereunder.
5.6 FINANCIAL STATEMENTS, BOOKS AND RECORDS. Prior to the Closing
Date, Prospect Holdings will have delivered to PrimeCare International (receipt
of which is hereby acknowledged) copies of an audited statement of operations
for the year ended September 30, 1997, an audited balance sheet at September 30,
1997, an unaudited interim statement of operations for the period from year-end
through January 31, 1998, an unaudited balance sheet at January 31, 1998, and
projections of operations and cash flows through September 30, 2002, a schedule
of note and lease
16
payments for the period from January 1, 1998 through December 31, 1998 (the
"Prospect Holdings Financial Statements"). The Prospect Holdings Financial
Statements fairly and accurately represent or will represent the financial
condition of Prospect Holdings, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby, and, to Prospect Holdings' actual knowledge, do not or
will not contain any statement that is false or misleading with respect to any
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
5.7 CONDUCT OF PROSPECT HOLDINGS AND NO MATERIAL CHANGES. To the
actual knowledge of Prospect Holdings, since the date of the Financial
Statements there has not been, or will not have been, and as of the Closing
there shall not be:
(a) Any material adverse change in the financial or business
condition of Prospect Holdings.
(b) Any material change in the manner in which the business of
Prospect Holdings has been conducted.
5.8 TITLE TO ASSETS. At the Closing, Prospect Holdings shall deliver
the Shares, free and clear of all security interests, encumbrances, covenants
and restrictions (excepting only the Stockholder Representation Agreement).
5.9 NO LITIGATION; INSURANCE. Prospect Holdings has adequately
provided insurance for pending or threatened litigation, unasserted claims, or
governmental investigations, relating to the assets or business of Prospect
Holdings, if any, and will continue to maintain insurance against all
liabilities, claims and risks against which it is customary to insure.
5.10 NO BROKERS OR FINDERS. Except for Legend Capital Corporation,
neither Sierra Group nor Prospect Holdings has incurred any liability to any
broker, finder, or agent for any brokerage fees, finder's fees or commissions
with respect to the transactions contemplated by this Agreement, and if any such
liability has been incurred, such liability shall be and remain the sole
responsibility of Sierra Group and Prospect Holdings, and Sierra Group and
Prospect Holdings shall indemnify, defend and hold Antelope Valley Group and
PrimeCare International harmless from and against any and all liabilities,
losses, damages, claims, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees), arising out of or relating to
such liability.
5.11 NO BANKRUPTCY PROCEEDINGS. Neither Sierra Group nor Prospect
Holdings has (i) made a general assignment for the benefit of creditors,(ii)
filed any voluntary petition in bankruptcy or suffered the filing of any
involuntary petition by
17
its creditors,(iii) suffered the appointment of a receiver to take possession of
all or substantially all of its assets, properties or business,(iv) suffered the
attachment or other judicial seizure of all or substantially all of its assets,
properties or business,(v) admitted in writing its inability to pay its debts as
such debts become due, or (vi) made an offer of settlement, extension or
compromise to its creditors generally.
5.12 LICENSURE AND REIMBURSEMENT. As of the date hereof, to the
actual knowledge of Prospect Holdings, except as set forth in Exhibit 5.12:
(a) Both Prospect Holdings and all medical groups managed by
Prospect Holdings have all licenses, permits, approvals and authorizations
necessary for the conduct of their businesses as presently conducted.
(b) No medical group managed by Prospect Holdings or any
affiliate of Prospect Holdings is currently prevented from participating in the
Medicare and Medicaid programs or in any other applicable governmental health
care payment programs. There are no federal or state investigation pending or
contemplated that will have an impact upon any such medical group's
reimbursement status or ability to operate a medical practice in California or a
physician practice management business in California.
(c) All billing practices of Prospect Holdings or its affiliates
on behalf of any medical group applicable to all third parties including, but
not limited to, private insurance companies, have been true, fair and correct
and in compliance with all applicable laws, regulations, and policies of all
such third party payors, and such medical groups have not billed for or received
any payment or reimbursement in excess of amounts permitted by law.
(d) Prospect Holdings, Sierra Group, and their respective agents
have not directly or indirectly (i) offered to pay or solicited any
remuneration, in cash or in kind, to, or made any financial arrangements with,
any past or present customers, past or present suppliers, contractors, third
parties, or third party payors of any medical group managed by Prospect Holdings
or any affiliate of Prospect Holdings in order to obtain business or payments
from such persons, other than pursuant to, and in accordance with, appropriate
managed care contracts, and other than entertainment activities in the ordinary
and lawful course of business;(ii) given or received, or agreed to give or
receive, any gift or gratuitous payment of any kind, nature or description
(whether in money, property or services) to any customer or potential customer,
supplier or potential supplier, contractors, third party payor or any other
person other than in connection with promotional, entertainment, or charitable
activities in the ordinary and lawful course of business;(iii)
18
made or agreed to make, or is aware that there has been made or that there is
any agreement to make any contribution, payment or gift of funds or property to,
or for the private use of, any governmental official, employee or agent where
either the contribution, payment or gift or the purpose of such contribution,
payment or gift is or was illegal under the law of the United States or under
the laws of any state thereof or any other jurisdiction under which such
payment, contribution or gift was made;(iv) established or maintained any
unrecorded fund or asset for any purpose or made any false or artificial entries
on any of its books or records for any reason; or (v) made or agreed to make or
is aware that there has been made or that there is any intention to make, any
payment to any person with the intention or understanding that any part of such
payment would be used for any purpose other than that described in the documents
supporting such payment.
(e) No medical group managed by Prospect Holdings or any
affiliate of prospect Holdings, or their agents is a party to any contract,
lease, agreement or arrangement, including but not limited to any joint venture
or consulting agreement with any physician, hospital, nursing facility, home
health agency or other person who is in a position to make, receive or influence
referrals to or from such medical groups, to provide services, lease space,
lease equipment or engage in any other venture or activity, other than pursuant
to, and in accordance with, appropriate managed care contracts.
5.13 CONFIDENTIALITY. Sierra Group shall, at Closing, receive custody
of any patient records in the possession of Antelope Valley Group and shall
maintain such medical records in accordance with applicable state and federal
laws and regulations.
5.14 NO UNTRUE STATEMENTS. (i) Neither Sierra Group nor Prospect
Holdings, as the case may be, has made any untrue statement or representation in
connection with this Agreement, (ii) all written instruments or documents
transferred or delivered and/or given to Antelope Valley Group or PrimeCare
International by or from Prospect Holdings or Sierra Group, as the case may be,
are true, correct and complete copies of what they purport to be, (iii) to their
actual knowledge, neither Sierra Group nor Prospect Holdings has failed to state
or disclose any material fact in connection with the transactions contemplated
by this Agreement, and (iv) neither Sierra Group nor Prospect Holdings knows of
any facts or has misrepresented any facts concerning its respective ability,
financial or otherwise, to consummate the transactions contemplated by this
Agreement or that would adversely affect Antelope Valley Group's decision to
sell the Assets and acquire the Shares.
5.15 LINE OF CREDIT. Notwithstanding the subordinated nature of the
Note, Prospect Holdings has sufficient cash on hand
19
from operations or credit available to pay its obligations under the Note as
such obligations become due. Further, Prospect Holdings is not in default under
any line of credit, promissory note, or security agreement nor has any event
occurred that, with notice or the passage of time, or both, would constitute a
default by Prospect Holdings under any such credit agreements, and there is no
basis for any of the other parties to such credit agreements to assert that
Prospect Holdings is in default thereunder.
ARTICLE 6
SIERRA GROUP'S/PROSPECT HOLDINGS' ACCESS TO RECORDS;
PUBLICITY
6.1 ACCESS TO RECORDS.
(a) Between the date of the execution hereof and the Closing,
Sierra Group, Prospect Holdings, Antelope Valley Group and PrimeCare
International shall mutually agree upon the reasonable access to the tax
returns, books, records, licenses, certifications, contracts, agreements, and
employee records (regarding positions, job descriptions, compensation, seniority
level, accrued vacation and sick leave), and all other relevant documentation
specifically identified as related to the Practice of Antelope Valley Group.
Neither Sierra Group, Prospect Holdings, nor its representatives shall disclose
the contents of any said materials that has been discovered in the course of its
due diligence ("Prospect's Due Diligence") to any third party without prior
written consent of Antelope Valley Group or PrimeCare International, as the case
may be, except:(i) as required by law;(ii) as may be reasonably necessary in
connection with any litigation or dispute arising out of this Agreement or any
of the transactions contemplated hereunder; (iii)information contained in any
such materials that was already in Sierra Group's or Prospect Holdings'
possession prior to the date hereof; and (iv) information contained in any such
materials that is or becomes generally available to the public other than as a
result of a disclosure by Sierra Group, Prospect Holdings, or its agents or
employees in violation of this Section.
(b) Between the date of the execution hereof and the Closing,
Antelope Valley Group and PrimeCare International shall be provided reasonable
access to documentation related to the assets and business of Prospect Holdings,
as the parties shall mutually agree. Neither Antelope Valley Group, PrimeCare
International, nor its representatives shall disclose the contents of any said
materials that has been discovered in the course of its due diligence
("PrimeCare's Due Diligence") to any third party without prior written consent
of Sierra Group or Prospect Holdings, as the case may be, except:(i) as required
by
20
law; (ii) as may be reasonably necessary in connection with any litigation or
dispute arising out of this Agreement or any of the transactions contemplated
hereunder; (iii) information contained in any such materials that was already in
Antelope Valley Group's or PrimeCare International's possession prior to the
date hereof; and (iv) information contained in any such materials that is or
becomes generally available to the public other than as a result of a disclosure
by Antelope Valley Group, PrimeCare International, or its agents or employees in
violation of this Section.
6.2 PUBLICITY. No party shall, at any time on or after the date
hereof through the Closing Date, issue any publicity or written or oral
statement, or otherwise disclose the existence of this Agreement or any of the
terms or conditions hereof, or disclose the contemplation, implementation or
consummation of any of the transactions intended hereby (other than to its
directors, officers, employees, attorneys, financial advisors and other agents
and representatives, as necessary in order to negotiate, evaluate, approve and
consummate the transactions hereunder), without the prior written consent of all
parties, except in accordance with any of the exceptions as set forth in Section
6.1, and except as reasonably required of any party by any applicable federal or
state securities law (or agency's) disclosure requirements.
ARTICLE 7
CLOSING; CONDITIONS TO OBLIGATIONS TO CLOSE
7.1 CLOSING DATE. The transactions contemplated by this Agreement
shall be consummated at the "Closing". The Closing shall take place at Xxxxxx &
Xxxxxxx, 1801 Century Park East, 7th Floor, Los Angeles, California, or at such
other place as may be designated by all of the parties on the Closing Date. The
Closing Date shall be the first business day following the date upon which all
conditions to closing as set forth in Article 7 are satisfied or waived, unless
otherwise agreed upon by PrimeCare International and Prospect Holdings. The
"Effective Time" for purposes of this Agreement shall be 12:01am of the day
immediately after the Closing Date.
7.2 DELIVERIES BY PRIMECARE INTERNATIONAL AND ANTELOPE VALLEY GROUP.
At the Closing, PrimeCare International and Antelope Valley Group, as the case
may be, shall execute (as to documents calling for execution) and deliver to
Prospect Holdings and Sierra Group, as the case may be, the following:
(a) A Xxxx of Sale/Assignment and Assumption Agreement in the
form of Exhibit 7.2(a) attached hereto and such other sufficient instruments and
documents to convey, transfer, assign, or further perfect, title to each of the
Assets
21
(including PrimeCare Contracts) as are reasonably requested by Prospect Holdings
to transfer the Assets.
(b) A Xxxx of Sale/Assignment and Assumption Agreement in the
form of Exhibit 7.2(b) attached hereto and such other sufficient instruments and
documents to convey, transfer, assign, or further perfect, title to each of the
Antelope Valley Group Assets, and to convey, transfer and assign the Provider
Agreements as are reasonably requested by Sierra Group to transfer the Antelope
Valley Group Assets.
(c) The Stockholder Representation Agreement.
(d) Good standing certificates issued by the California
Secretary of State and Franchise Tax Board, respectively, which show that
Antelope Valley Group and PrimeCare International are in good standing with such
agencies.
(e) A certificate signed by a duly authorized officer of
PrimeCare International and Antelope Valley Group, certifying (in the form of
the certificate attached hereto as Exhibit 7.2(e)) that as of the Closing Date,
(i) all of the representations and warranties contained in this Agreement are
true on and as of the Closing Date and (ii) that all conditions specified in
this Agreement to be fulfilled by PrimeCare International and Antelope Valley
Group have been fulfilled.
(f) Executed amendments by and between each of Antelope Valley
Group's participating providers and Antelope Valley Group ("Provider
Amendments") consenting to the assignment of the Provider Agreements to which
they are parties and modifying the agreements as exclusive provider arrangements
for three (3) years, copies of which are attached hereto as Exhibit 7.2(f).
(g) All documents and instruments required of Antelope Valley
Group by the Health Plans to transfer Member Responsibility.
(h) A UCC search report dated not more than fifteen (15) days
prior to the Closing Date issued by the California Secretary of State that shows
that there are no filings under the Uniform Commercial Code on file with such
Secretary of State indicating any liens on the Assets, the Antelope Valley Group
Assets, the Provider Agreements, or any restriction on the transfer of Member
Responsibility, other than those filings specifically approved by Prospect
Holdings and Sierra Group, as the case may be, prior to the Closing.
(i) The Covenant Not To Compete, as set forth in Article 8, and
attached hereto as Exhibit 8.0.
22
(j) That certain Interim Services Agreement of Antelope Valley
Group, attached hereto as Exhibit 7.2(j), whereby Sierra Group shall become
financially responsible for those members who have not been transferred as of
the Effective Time ("ISA").
(k) That certain Subordination Agreement with Imperial Bank.
7.3 DELIVERIES BY SIERRA GROUP AND PROSPECT HOLDINGS. At the Closing,
Sierra Group and Prospect Holdings, as the case may be, shall execute (as to
documents calling for execution) and shall deliver to PrimeCare International
and Antelope Valley Group, as the case may be, the following:
(a) The PrimeCare Down Payment shall be delivered to PrimeCare
International.
(b) The Contract Acquisition Price shall be delivered to
Antelope Valley Group.
(c) The Note shall be delivered to PrimeCare International.
(d) The Shares shall be delivered to PrimeCare International, or
(upon the written consent of PrimeCare International), Prospect Holdings shall
deliver written instructions to the designated transfer agent and the Shares
shall be delivered to PrimeCare International as soon as reasonably possible.
(e) The Xxxx of Sale/Assignment and Assumption Agreement in the
form of Exhibit 7.2(a) attached hereto and such other sufficient instruments and
documents regarding the consent to assignment and assumption of the Provider
Agreements, and the transfer of Membership Responsibility, as are reasonably
requested by Antelope Valley Group.
(f) The Xxxx of Sale/Assignment and Assumption Agreement in the
form of Exhibit 7.2(b) attached hereto and such other sufficient instruments and
documents regarding the acceptance of the transfer of the Assets as are
reasonably requested by PrimeCare International.
(g) The Stockholder Representation Agreement.
(h) A certificate signed by a duly authorized officer of
Prospect Holdings and Sierra Group, certifying that as of the Closing Date, all
of the representations and warranties contained in this Agreement are true on
and as of the Closing Date and that all conditions specified in this Agreement
to be fulfilled by Prospect Holdings and Sierra Group have been
23
fulfilled, in the form of the certificate attached hereto as Exhibit 7.3(h).
(i) Good standing certificates issued by the California
Secretary of State and Franchise Tax Board, respectively, which show that
Prospect Holdings is in good standing with such agencies.
(j) The ISA.
7.4 CONDITIONS TO PROSPECT HOLDINGS AND SIERRA GROUP'S OBLIGATION.
Prospect Holdings' and Sierra Group's obligation to consummate the transactions
contemplated by this Agreement is conditioned upon satisfaction, or waiver by
Prospect Holdings or Sierra Group, as the case may be, in writing, of all of the
following on or before the Closing Date:
(a) The performance by PrimeCare International of all of
PrimeCare International's respective promises and agreements under this
Agreement that are to be performed as of the Closing, including but not limited
to the procurement and delivery to Prospect Holdings of all necessary
assignments and consents (including consents to the assignment of the PrimeCare
Contracts); and the performance by Antelope Valley Group of all of Antelope
Valley Group's respective promises and agreements under this Agreement, that are
to be performed as of the Closing, including but not limited to the procurement
and delivery to Sierra Group of all necessary assignments and consents
(including consents to the assignment of the Provider Agreements).
(b) The execution and delivery of all documents and information
requested of Antelope Valley Group by all Health Plans, necessary to transfer
Member Responsibility currently contracting with said providers through Antelope
Valley Group or an affiliate of Antelope Valley Group, including, without
limitation, the execution and delivery to the Health Plans within two (2)
business days of the date of the execution of this Agreement by both parties of
a notification letter previously approved by Prospect Holdings.
(c) The delivery to Sierra Group of a copy of the master files
for HMO eligibility related to Antelope Valley Group and physician
credentialling records of those physicians executing Provider Agreements at
least fourteen (14) business days prior to Closing.
(d) Prospect Holdings' or Sierra Group's reasonable approval or
satisfaction with each item under this Agreement with respect to which Prospect
Holdings or Sierra Group is entitled to approve or to be satisfied, including,
without limitation, all schedules and exhibits hereto and all items that
Prospect Holdings and Sierra Group reviews pursuant to Prospect's Due Diligence.
24
(e) No suit, arbitration or legal, administrative or other
proceeding or governmental investigation shall be pending or threatened against
Sierra Group, Prospect Holdings, PrimeCare International, or Antelope Valley
Group, or any affiliates thereof, in relation to or affecting the consummation
of the transactions contemplated by this Agreement.
(f) Each of the representations and warranties of PrimeCare
International and Antelope Valley Group is true, complete and correct as of the
Closing.
(g) The Assets and the Antelope Valley Group Assets have not
been damaged and there has been no adverse change to the Assets, the Antelope
Valley Group Assets, the Payor Contracts or the Provider Agreements from the
date of this Agreement.
(h) Neither Sierra Group nor Prospect Holdings has exercised any
of the cancellation options under Section 10 below.
(i) Delivery of executed Provider Amendments.
(j) The procurement and delivery by PrimeCare International of
the consent of any lender of PrimeCare International or Antelope Valley Group
holding a security interest in the Assets, the Antelope Valley Group Assets, or
the Provider Agreements, or restricting the transfer of Member Responsibility,
and the release of any related Liens. Such consent and release of Liens shall
be in form and substance reasonably satisfactory to Prospect Holdings or Sierra
Group, as the case may be.
(k) The procurement and delivery by Prospect Holdings of the
consent of any lender of Prospect Holdings or Sierra Group of the transactions
contemplated in this Agreement.
(l) The completion of the Audit by Ernst & Young and delivery to
Prospect Holdings, Sierra Group, PrimeCare International, and Antelope Valley
Group.
7.5 CONDITIONS TO PRIMECARE INTERNATIONAL'S AND ANTELOPE VALLEY
GROUP'S OBLIGATIONS. PrimeCare International's and Antelope Valley Group's
obligation to consummate the transactions contemplated by this Agreement is
conditioned upon satisfaction, or waiver by PrimeCare International and Antelope
Valley Group in writing, of all of the following on or before the Closing Date:
(a) The performance by Prospect Holdings and Sierra Group (or
their affiliates) of all of Prospect Holdings' and Sierra Group's promises and
agreements under this Agreement that are to be performed as of Closing,
including but not limited
25
to the procurement and delivery to PrimeCare International and Antelope Valley
Group of all necessary assignments and consents.
(b) PrimeCare International's and Antelope Valley Group's
reasonable approval or satisfaction of each item under this Agreement with
respect to which Prime Care International and Antelope Valley Group is entitled
to approve or to be satisfied, including, without limitation, all schedules and
exhibits hereto and all items that PrimeCare International and Antelope Valley
Group reviews pursuant to PrimeCare's Due Diligence.
(c) No suit, arbitration or legal, administrative or other
proceeding or governmental investigation shall be pending or threatened against
Sierra Group, Prospect Holdings, PrimeCare International, or Antelope Valley
Group in relation to or affecting the consummation of the transactions
contemplated by this Agreement.
(d) Each of the representations and warranties of Prospect
Holdings and Sierra Group is true, complete and correct as of the Closing.
(e) Neither PrimeCare International nor Antelope Valley Group
has exercised any of the cancellation options under Section 10 below.
(f) The procurement and delivery by PrimeCare International of
the consent of any lender of PrimeCare International or Antelope Valley Group
holding a security interest in the Assets , the Antelope Valley Group Assets, or
the Provider Agreements, or restricting the transfer of Member Responsibility,
and the release of any related Liens.
(g) The procurement and delivery by Prospect Holdings of the
consent of any lender of Prospect Holdings or Sierra Group of the transactions
contemplated in this Agreement. Such consents shall be in form and substance
reasonably satisfactory to PrimeCare International or Antelope Valley Group, as
the case may be.
ARTICLE 8
NONCOMPETITION/NON-SOLICITATION
Antelope Valley Group and PrimeCare International agree not to
compete with the business of Sierra Group and Prospect Holdings, respectively,
for a period of three (3) years from the Closing Date in accordance with the
Covenant Not To Compete attached as Exhibit 8.0.
26
ARTICLE 9
INDEMNIFICATION
9.1 ANTELOPE VALLEY GROUP/PRIMECARE INTERNATIONAL. Antelope Valley
Group and PrimeCare International shall, jointly and severally, indemnify,
defend and hold Sierra Group, Prospect Holdings, their affiliates, and their
directors, officers, employees, attorneys, and agents harmless from and against
any and all liabilities, losses, damages, claims, causes of action, costs and
expenses (including, without limitation, reasonable attorneys' fees), arising
out of or relating to:
(a) Any misrepresentations or any breach of any representation
or warranty made by Antelope Valley Group or PrimeCare International whether
contained in this Agreement or in any certificate, instrument, Exhibit or
Schedule furnished to Sierra Group or Prospect Holdings at the Closing;
(b) Failure of Antelope Valley Group or PrimeCare International,
as the case may be, to perform any covenant, agreement or obligation made in
this Agreement or any agreement referenced in this Agreement; and
(c) The ownership, use or operation of the Practice, the
Provider Agreements, the Payor Contracts, or the Assets or Antelope Valley Group
Assets, or the conduct of PrimeCare International or Antelope Valley Group, as
the case may be, or any agent, employee, officer, director or representative of
such party prior to the Effective Time.
9.2 SIERRA GROUP/PROSPECT HOLDINGS. Sierra Group and Prospect
Holdings shall, jointly and severally, indemnify, defend and hold Antelope
Valley Group, PrimeCare International, their affiliates, and their directors,
officers, employees, attorneys, and agents harmless from and against any and all
liabilities, losses, damages, claims, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees), arising out of or
relating to:
(a) Any misrepresentations or any breach of any representation
or warranty made by Sierra Group or Prospect Holdings whether contained in this
Agreement or in any certificate, instrument, Exhibit or Schedule furnished to
Antelope Valley Group or PrimeCare International at the Closing;
(b) Failure of Sierra Group or Prospect Holdings, as the case
may be, to perform any covenant, agreement or obligation made in this Agreement
or any agreement referenced in this Agreement; and
(c) The ownership, use or operation of the Assets, the Antelope
Valley Group Assets, the Provider
27
Agreements, or related to the responsibility for the members, the responsibility
for whom was transferred to Sierra, or the conduct of Sierra Group or Prospect
Holdings, as the case may be, or any agent, employee, officer, director or
representative of such party at and after the Effective Time (including, but not
limited to, those claims, damages and costs of defense arising out of, or
related to, the enforcement of the Provider Covenants as set forth in Section
4.23(a), but not including any award of damages related to a cross-complaint or
other action arising out of, or related to, such enforcement of the Provider
Covenants).
ARTICLE 10
CANCELLATION OF AGREEMENT
10.1 JEOPARDY. In the event the performance by any party hereto of
any term, covenant, condition or provision of this Agreement should jeopardize
(i) the participation of any party in Medicare, Medicaid or other reimbursement
or payment programs; or (ii) if for any other reason said performance should be
in violation of any statue or ordinance, or be otherwise deemed illegal, or be
deemed unethical by any recognized body, agency, or association in the medical
or hospital fields (collectively, "Jeopardy Event"), then the parties shall use
their best efforts to meet forthwith and attempt to negotiate an amendment to
this Agreement to remove or negate the effect of the Jeopardy Event. In the
event the parties are unable to negotiate such an amendment within five (5) days
following written notice by either party of the Jeopardy Event, then any party
may cancel this Agreement immediately upon written notice.
10.2 EXERCISE OF CANCELLATION OPTION. In the event a party exercises
the cancellation option described above, it shall so notify the other parties in
writing and each party shall return forthwith all originals and copies of any
financial or other records, instruments, or other documents it has received from
the other party and, except as provided in this Agreement, all of the parties'
respective rights and obligations hereunder shall terminate immediately.
Notwithstanding the foregoing, the parties' respective obligations under Section
and 6.2 above shall survive a party's exercise of said cancellation option.
ARTICLE 11
MISCELLANEOUS
11.1 RISK OF LOSS. Until the Closing, PrimeCare International shall
bear all risk of loss, damage or destruction to the Assets. Until the Closing,
Antelope Valley Group shall bear all risk of loss, damage or destruction to the
Antelope Valley Group Assets.
28
11.2 ENTIRE AGREEMENT. This Agreement, together with all exhibits and
schedules hereto, and all documents referred to herein, constitute the entire
agreement between the parties with respect to the subject matter hereof,
supersedes all other and prior agreements on the same subject, whether written
or oral, and contains all of the covenants and agreements between the parties
with respect to the subject matter hereof. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements
orally or otherwise, have been made by the party(ies), or by anyone acting on
behalf of any party, that are not identified herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding.
11.3 SUCCESSORS AND ASSIGNS. This Agreement and all documents and
agreements referred to herein shall be binding upon and shall inure to the
benefit of the parties and their respective heirs (as applicable), legal
representatives, and permitted successors and assigns. No party may assign this
Agreement or the rights, interests or obligations hereunder; provided, however,
that to the extent permitted by applicable law, Sierra Group may (i) assign any
or all of its rights and interests hereunder to one or more of its affiliates
and (ii) designate one or more of its affiliates to perform its obligations
hereunder (in any or all of which cases Sierra Group shall remain liable and
responsible for the performance of all of its obligations hereunder); provided,
further, that to the extent permitted by applicable law, Prospect Holdings may
assign any or all of its rights and interests hereunder to one or more of its
wholly-owned subsidiaries (in any or all of which cases Prospect Holdings shall
remain liable and responsible for the performance of all of its obligations
hereunder); provided further, however, that to the extent permitted by
applicable law, Prospect Holdings and Sierra Group may collaterally assign any
or all of their respective rights and interests hereunder to Prospect Holdings'
primary lender (which, as of the date hereof, is Imperial Bank, a California
banking corporation) ("Lender") and its successors and assigns as collateral
security for the obligations of Prospect Holdings owing to Lender. Any
assignment or delegation in contravention of this Section shall be null and
void.
11.4 NO WAIVER. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or be construed as a further or continuing waiver of any such
term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
11.5 COUNTERPARTS. This Agreement, and any amendments hereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.
29
11.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.7 NOTICES. Any notices required or permitted to be given hereunder
by any party to the other shall be in writing and shall be deemed delivered upon
personal delivery; twenty-four (24) hours following deposit with a courier for
overnight delivery; or seventy-two (72) hours following deposit in the U.S.
Mail, registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may specify in writing:
If to Antelope Valley Group or PrimeCare International:
PrimeCare International
0000 Xxxx Xxxxxx Xxxx
Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
If to Sierra Group or Prospect Holdings:
Prospect Medical Holdings, Inc.
000 X. Xxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, M.D.
With copy to: Xxxxxx & Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx, 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
11.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
11.9 AMENDMENT. This Agreement may be amended at any time by
agreement of the parties, provided that any amendment shall be in writing and
executed by all parties.
11.10 SEVERABILITY. If any provisions of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions will nevertheless continue in full force and effect, unless such
invalidity or unenforceability would defeat an essential business purpose of
this Agreement.
11.11 FEES AND EXPENSES. Except as otherwise explicitly set forth in
a writing signed by the parties, each
30
party shall bear its own expenses including, without limitation, attorneys' and
accountants' fees in connection with the preparation of this Agreement and the
transactions contemplated hereby.
11.12 EXHIBITS AND SCHEDULES. All exhibits and schedules attached to
this Agreement are incorporated herein by this reference and all references
herein to "Agreement" shall mean this Agreement together with all such exhibits
and schedules to be delivered at Closing.
11.13 SURVIVAL OF INDEMNITIES, REPRESENTATIONS AND WARRANTIES. Except
as expressly stated to the contrary herein, the indemnities, representations and
warranties of Sierra Group, Prospect Holdings, PrimeCare International, and
Antelope Valley Group contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof shall survive for one (1)
year after the Closing Date.
11.14 TIME OF ESSENCE. Time is expressly made of the essence of this
Agreement and each and every provision hereof of which time of performance is a
factor.
11.15 CONSTRUCTION OF AGREEMENT. Ambiguities, if any, in this
Agreement shall be reasonably construed in accordance with all relevant
circumstances, including, without limitation, prevailing practices in the
industry of the parties in the place where the contract is to be performed and
shall not be construed against either party, irrespective of which party may be
deemed to have authored the ambiguous provision.
11.16 DISPUTE RESOLUTION.
(a) In the event that the parties hereto are unable to resolve
any dispute in connection with this Agreement, the parties may mutually agree to
arbitrate in accordance with the following.
(b) There shall be one arbitrator. If the parties shall fail to
select a mutually acceptable arbitrator within ten (10) days after the demand
for arbitration is mailed, the parties stipulate to arbitration before a retired
judge sitting of the Los Angeles Judicial Arbitration Mediation Services (JAMS)
panel.
(c) The parties shall share all costs of arbitration. The
prevailing party shall be entitled to reimbursement by the other party(ies) of
such party(ies') attorney's fees and costs and any arbitration fees and expenses
incurred in connection with the arbitration hereunder.
(d) The substantive law of the State of California shall be
applied by the arbitrator to the resolution
31
of the dispute. The parties shall have the rights of discovery as provided for
in Part 4 of the California Code of Civil Procedure and as provided for in
Section 1283.05 of said Code. The California Code of Evidence shall apply to
testimony and documents submitted to the arbitrator.
(e) Arbitration shall take place in Los Angeles, California,
unless the parties otherwise agree. As soon as reasonably practicable, a
hearing with respect to the dispute or matter to be resolved shall be conducted
by the arbitrator. As soon as reasonably practicable thereafter, the arbitrator
shall arrive at a final decision, which shall be reduced to writing, signed by
the arbitrator and mailed to each of the parties and their legal counsel.
(f) All decisions of the arbitrator shall be final, binding and
conclusive on all parties and shall constitute the only method of resolving
disputes or matter subject to arbitration pursuant to this Agreement. The
arbitrator or a court of appropriate jurisdiction may issue a writ of execution
to enforce the arbitrator's judgment. Judgment may be entered upon such a
decision in accordance with applicable law in any court having jurisdiction
thereof.
(g) Notwithstanding the foregoing, because time is of the
essence of this Agreement, the parties specifically reserve the right to seek a
judicial temporary restraining order, preliminary injunction, or other similar
short term equitable relief, and grant the arbitrator the right to make a final
determination of the parties' rights, including whether to make permanent or
dissolve such court order.
11.17 ATTORNEYS' FEES. Should any party institute any action or
procedure to enforce this Agreement or any provision hereof, or for damages by a
declaration of rights hereunder including without limitation arbitration, the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including without limitation
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
11.18 FURTHER ASSURANCES. The parties shall take such actions and
execute and deliver such further documentation as may reasonably be required in
order to give effect to the transaction contemplated by this Agreement and the
intentions of the parties hereto.
[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
32
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
SIERRA PRIMARY CARE MEDICAL GROUP, A MEDICAL
CORPORATION
By: Xxxxx X. Xxxxxx, M.D.
-----------------------------------
Its: CEO
------------------------------
PROSPECT MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: Xxxxx X. Xxxxxx, M.D.
-----------------------------------
Its: CEO
------------------------------
PRIMECARE MEDICAL GROUP OF ANTELOPE VALLEY, INC., a
California professional corporation
By: Xxxx Xxxxx, M.D.
-----------------------------------
Xxxx Xxxxx, M.D.
PRIMECARE INTERNATIONAL, INC.,
a Delaware corporation
By: Xxxxxx Xxxxx
-----------------------------------
Its: Executive Vice President
------------------------------
33
EXHIBITS TO
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS(1)
TRANSFER OF MEMBER RESPONSIBILITY
1.1 Assets
1.2 Provider Agreements/Health Plans and Associated Assets
2.1 Assumed PrimeCare Liabilities
2.2 Assumed Antelope Valley Liabilities
3.1(a)(ii) Notes
3.4 Stockholder Representation Agreement
4.11 Enrollment
4.13 Litigation
4.20 Inspections
5.12 Licensure and Reimbursement
7.2(a) Xxxx of Sale/Assignment and Assumption Agreement
(PrimeCare International/Prospect Medical Holdings)
7.2(b) Xxxx of Sale/Assignment and Assumption Agreement
(PrimeCare Medical Group of Antelope Valley/
Sierra Primary Care Medical Group)
7.2(e) Certificate of PrimeCare Medical Group of Antelope Valley, Inc./
PrimeCare International, Inc.
7.2(f) Provider Amendments
7.2(j) Interim Services Agreement
7.3(h) Certificate of Sierra Primary Care Medical Group/
Prospect Medical Holdings
8.0 Covenant Not to Compete
1 The Registrant hereby undertakes to provide to the Securities and
Exchange Commission upon request copies of any of the exhibits listed
above not otherwise filed with this Form S-1 Registration Statement as
noted above.
34
