AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT
THIS AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT ("Agreement") is made
as of the 2nd day of September, 1998, and deemed to have been effective as of
June 5, 1996, by and among Prospect Medical Systems, Inc. ("Buyer"), a Delaware
corporation, Prospect Medical Group, Inc., a California professional medical
corporation ("Seller"), together with Xxxxx XxXxxxxx, M.D. ("Shareholder"), with
reference to the following facts:
RECITALS
A. Seller owns and operates a professional corporation that is organized
and operated as a medical group and independent practice association (the
"Practice").
B. Seller and Buyer are entering into that certain Asset Transfer
Agreement dated June 4, 1996, pursuant to which Seller is transferring certain
non-professional assets to Buyer (the "Asset Transfer Agreement").
C. Pursuant to the terms of a proposed Agreement and Plan of
Reorganization, Med-Search Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Med-Search, Inc., a Delaware corporation,
("Med-Search") is intended to merge with and into Buyer (the "Merger").
D. Effective as of the Closing of the Merger, Seller desires to grant to
Buyer, and Buyer desires to acquire from Seller, (i) an assignable option to
purchase all of the remaining assets of Seller, and (ii) the right to designate
the purchaser ("Successor Physician") of all or part of the issued and
outstanding stock in Seller. When used in this Agreement, the term "Assets"
shall mean all of Seller's and Shareholder right, title, interest and estate in
and to all the assets of every kind and description used in or pertaining to the
Practice, including but not limited to the assets set forth on Exhibit A, not
including any assets transferred to Seller pursuant to the terms of the Asset
Transfer Agreement. When used in this Agreement, the term "Stock" shall mean
all of Shareholder's right, title, interest and estate in and to all of the
issued and outstanding stock in Seller, including any rights to any additional
stock, preemptive rights, warrants, and the like, as set forth on Exhibit B.
E. Shareholder, Seller and Buyer desire to enter into this Agreement to
incorporate within the terms of one agreement all of the amendments previously
made and to be made as of the date of execution hereof to an Assignable Option
Agreement made as of June 5, 1996 (the "Original Agreement").
NOW, THEREFORE, in consideration of the foregoing promises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, Seller, Shareholder, and Buyer agree as follows:
1. GRANT OF OPTION.
1.1 Seller hereby grants to Buyer an assignable option to purchase all or
any part of the Assets (the "Assets Option"), on the terms and subject to the
conditions set forth in this Agreement.
1.2 Seller and Shareholder hereby grant to Buyer the assignable right to
designate a Successor Physician or Successor Physicians, which person or persons
must be duly licensed physicians in the State of California or otherwise
permitted by law to be a shareholder in a professional corporation, to purchase
all or part of the Stock (the "Stock Option"), on the terms and subject to the
conditions set forth herein. In its sole discretion, Buyer may designate the
amount of Stock which is to be purchased. The Assets Option and the Stock
Option are collectively referred to herein as the "Option."
1.3 Seller and Shareholder represent and warrant that as of the day and
year first above written and during the term of this Agreement, Exhibits A and B
are true and complete listings of the Assets and Stock, respectively, as revised
from time to time pursuant to this Agreement.
1.4 Except as set forth in the Amended and Restated Credit Succession
Agreement, dated as of July 14, 1997, by and among Prospect Medical Holdings,
Inc., a Delaware corporation, Seller, Shareholder, Buyer, Santa Xxx/Tustin
Physicians Group, Inc., a California professional corporation, and Imperial
Bank, a California banking corporation ("Imperial"), as amended (the "Credit
Succession Agreement"), Seller shall not recognize any share transfer or other
action not in compliance with the terms of this Agreement.
2. TERM OF AGREEMENT. The term of this Agreement commences as of the day and
year first above written and continues for thirty (30) years ("Term"). So long
as the term of the Management Services Agreement, made and entered into as of
June 4, 1996, as amended, by and between Buyer and Seller (the "Management
Services Agreement"), is automatically extended pursuant thereto, the term of
this Agreement shall be automatically extended for additional coextensive terms
of ten (10) years each. In the event the Management Services Agreement is
terminated pursuant to its terms, this Agreement shall terminate upon the
effective date of termination of said Management Services Agreement.
3. OPTION PRICE. The purchase price for the Option (the "Option Price") is
One Hundred Dollars ($100) and Seller and Shareholder acknowledge receipt of
such payment.
4. EXERCISE OF OPTION.
4.1 During the Term of this Agreement, Buyer may elect to exercise the
Option at any time. In the event of an election by Buyer to exercise the
Option, Buyer may exercise either the Assets Option or the Stock Option, or
both, at Buyer's sole discretion.
4.2 Notwithstanding the provisions of Section 4.1, if the Management
Services Agreement is terminated by either party, for any reason, Buyer's right
to exercise the Option is
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automatically and immediately exercised as of the termination date of the
Management Services Agreement such that Buyer may exercise either the Assets
Option or the Stock Option, or both, at such time.
4.3 To the extent that the Assets Option is exercised by Buyer, Buyer will
send Seller a written notice (the "Assets Exercise Notice") specifying the
Assets to be purchased. Buyer may exercise the Assets Option as many times as
Buyer elects in its sole discretion.
4.4 To the extent that the Stock Option is exercised by Buyer, Buyer will
send Seller a written notice (the "Stock Exercise Notice") specifying the Stock
to be purchased. Buyer may designate the Successor Physician(s) who will
exercise the Stock Option as many times as Buyer elects in its sole discretion.
4.5 The Assets Option and the Stock Option are independent of each other,
and can be exercised at different times during the Term.
4.6 Buyer may cancel any Assets Exercise Notice or Stock Exercise Notice
at any time.
4.7 Seller and Shareholder shall cooperate with Buyer in any due
diligence.
5. ASSIGNMENT OF THE OPTION. Buyer may elect to assign either the Assets
Option or the Stock Option or both to any person, by a written assignment,
signed by both Buyer and the assignee, which designates the Assets and/or Stock.
The assignee shall agree as a condition of the assignment to be bound by the
terms of this Agreement. Thereafter, only the assignee named in the assignment
shall have the right to exercise the applicable Assets Option and/or the Stock
Option as to the designated Assets and/or Stock, and that assignee, rather than
Buyer, shall enter into a purchase agreement upon exercise of the Assets Option
and/or the Stock Option, as applicable. Written notice of any such assignment
shall be given by Buyer to Seller and Shareholder within a reasonable time
period following execution of any assignment pursuant to this Agreement. When
the context so requires in this Agreement, the term "Buyer" shall be deemed to
refer to an assignee holding an assignment of an Asset Option or Stock Option,
and the terms "party" and "parties" shall be deemed to include that assignee.
6. PURCHASE PRICE OF THE ASSETS OR STOCK.
6.1 PURCHASE PRICE.
a. ASSETS PURCHASE PRICE. The purchase price for the Assets to be
purchased pursuant to the exercise of the Assets Option shall be $1,000
("Assets Purchase Price"). The purchase price of any partial purchase of the
Assets shall be a pro-rata percentage of the full Assets Purchase Price.
b. STOCK PURCHASE PRICE. The purchase price for the Stock to be
purchased pursuant to the exercise of the Stock Option shall be $1,000
("Stock Purchase Price"). The purchase price
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of less than all of the issued and outstanding Stock is a pro-rata percentage
of the full Stock Purchase Price.
6.2 PAYMENT. For the Assets, Buyer shall pay Seller the Assets Purchase
Price at Closing in the form of immediately available funds transferred by wire
to an account at a financial institution designated by Seller. For the Stock,
Buyer shall cause the Successor Physician to pay the Shareholder the Stock
Purchase Price.
6.3 CLOSING. The transactions contemplated by this Agreement are to close
forty-five (45) days after the date of either the Assets Exercise Notice or the
Stock Exercise Notice, as the case may be ("Closing"), unless extended by Buyer.
7. ADDITIONAL OBLIGATIONS OF SELLER.
7.1 AFFIRMATIVE COVENANTS. To the extent that Seller and Shareholder
participate in the Practice and own, control, or use the Assets, Seller and
Shareholder shall:
a. CONDUCT OF PRACTICE. Conduct Seller's business efficiently and
without voluntary interruption and preserve all rights, privileges, and
franchises held by Seller and Seller's Practice, including the maintenance of
all contracts, copyrights, trademarks, licenses, registrations, etc.;
b. USE. Make use of the Assets with reasonable care to prevent
diminution in value of the Practice and the Assets, and keep the Assets in good
repair;
c. VALUE. Perform all acts necessary to maintain, preserve, and protect
the Assets, and maintain fire and extended coverage insurance on the Assets in
the amounts and under policies acceptable to Buyer, and provide Buyer with the
original policies and certificates at Buyer's request;
d. FINANCING STATEMENTS. Execute and deliver to Buyer all financing
statements and other documents that Buyer requests, in order to put third
parties on notice of this Agreement;
e. ACCESS. Permit Buyer, its representatives, and its agents to inspect
the Assets at any time, and to make copies of records pertaining to the Assets,
at reasonable times at Buyer's request;
f. REPORTS. Furnish Buyer any reports relating to the Assets at Buyer's
request;
g. DEFAULTS. Notify Buyer promptly in writing of any default, potential
default, or any development that might have a material adverse effect on the
Assets, the Stock, or the Practice, or of any litigation that may have a
material adverse effect on the Practice;
h. EXPENSES. Pay all expenses, including attorneys' fees, incurred by
Buyer in the perfection, preservation, realization, enforcement, and exercise of
its rights under this Agreement,
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including but not limited to accounting, correspondence, collection efforts,
filing, recording, and recordkeeping;
i. INDEMNITY. Indemnify Buyer against losses, liabilities, or damages,
costs and expenses of any kind, including reasonable attorneys' fees, caused to
Buyer by reason of its interest in the Assets and/or the Stock;
j. TAXES. Pay promptly when due all taxes and assessments owed in
connection with the Assets and the Stock; and
k. DELIVERY OF CERTIFICATES. Deliver to Buyer all certificates
heretofore issued representing all of the shares of Seller's capital stock held
of record or beneficially owned by Shareholder, and each certificate hereafter
issued representing any share of Seller's capital stock, with each certificate
endorsed in blank for transfer. Notwithstanding the foregoing, this Section
7.1.k shall only apply in the event that the Credit Succession Agreement is no
longer in effect.
7.2 NEGATIVE COVENANTS. Except as required under the Credit Succession
Agreement, without the prior written consent of Buyer, Seller and Shareholder
shall not:
a. TRANSFER. Sell, lease, transfer, or otherwise dispose of the Assets
or Stock;
b. DEBT. Incur, guarantee, assume or otherwise become liable for any
borrowing or increase any existing indebtedness; or discharge or cancel any debt
owed to Seller;
c. NO FURTHER HYPOTHECATION. Pledge, hypothecate, encumber, redeem or
dispose of the Assets, the Stock or any interest therein until all of Seller's
obligations under this Agreement have been fully satisfied or the Assets or the
Stock has been released;
d. LOCATION. Move the Assets from their present locations without the
prior written consent of Buyer;
e. USE. Use the Assets or the Stock for any unlawful purpose or in any
way that would void any effective insurance;
f. NAME AND LOCATION CHANGES. Change the name or place of business or
use a fictitious business name without the prior express consent of Buyer; and
g. ISSUANCE OF STOCK; CHANGE IN OWNERSHIP; MERGERS AND CONSOLIDATION.
Permit any issuance of Stock, other equity, or debt; permit any change in the
composition or respective percentage ownership of Seller; permit Seller to be
merged, consolidated or otherwise reorganized with or into any other
corporation, partnership, trade, business, or the like; amend or otherwise
modify its articles of incorporation and bylaws; dissolve; or enter into any
agreement with any person to do any of the foregoing.
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8. CONFIDENTIALITY. The parties shall use all good faith efforts to keep the
contents of this Agreement and all other aspects of the negotiations preceding
execution of this Agreement confidential. Unless required by law, Seller,
Shareholder, and Buyer shall not disclose the contents of this Agreement or the
negotiations leading to this Agreement to third parties without the prior
written consent of the other party. Buyer shall ensure that all of the
assignees likewise comply with the obligations of confidentiality imposed by
this Section, except that Buyer and the assignees may disclose the contents of
such to their respective agents, representatives, contractors, and employees to
the extent necessary to exercise their respective rights or perform their
respective obligations hereunder.
9. GENERAL.
9.1 COMPLIANCE WITH LAW. Seller and Shareholder shall comply with all
applicable requirements of the Joint Commission on the Accreditation of
Healthcare Organizations, the Medicare and Medicaid programs, applicable state
law and regulations, and other licensing and accreditation authorities.
9.2 RELATIONSHIP OF PARTIES. In the exercise of their respective rights
and the performance of their respective obligations under this Agreement, Seller
and Shareholder on the one hand and Buyer (or any assignee) on the other hand
are acting in the capacity of the grantor and grantee of an option to purchase
all or a portion of the Assets and/or Stock, and nothing in this Agreement is
intended nor shall be construed to create between the parties an
employer/employee relationship, a partnership or joint venture relationship or a
landlord/tenant relationship.
9.3 ASSIGNMENT. All of Buyer's rights and duties under this Agreement may
be assigned or delegated by Buyer or Prospect Medical Holdings, Inc., including
but not limited to an assignment to Imperial; provided, however, that Buyer or
Prospect Medical Holdings, Inc., shall give written notice of any such
assignment to the Seller and Shareholder within a reasonable time period.
Notwithstanding any other provision of this Agreement, neither this Agreement
nor the rights and duties of this Agreement may be assigned or delegated by
Seller or Shareholder. This Agreement binds the successors, heirs, and
authorized assignees of the parties.
9.4 ENTIRE AGREEMENT. Except as expressly provided in this Agreement to
the contrary, this Agreement, including its incorporated exhibits, constitutes
the entire agreement between the parties with respect to the Option, and
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. Except as expressly provided in this
Agreement to the contrary, each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any other party hereto, or by anyone acting on behalf of any party
hereto, that are not embodied herein, and that no agreement, statement, or
promise not contained in this Agreement shall be valid or binding. This
Agreement incorporates the Original Agreement, together with all amendments
previously made and to be made to the date of execution hereof, and is deemed to
have been effective as of the date of the Original Agreement.
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9.5 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.
9.6 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.
9.7 NOTICES. Any notices required or permitted to be given hereunder by
any party to another 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 Seller or Shareholder: Prospect Medical Group, Inc.
00000 Xxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attention: President & Shareholder
If to Buyer: Prospect Medical Systems, Inc.
00000 Xxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attention: President
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9.9 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.
9.10 SEVERABILITY. If any provision 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.
9.11 FEES AND EXPENSES. Seller, Shareholder, and Buyer each shall bear
their own expenses, including, without limitation, attorneys' and accountants'
fees, incurred in connection with the preparation of this Agreement and the
transactions contemplated hereby.
9.12 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.
9.13 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.
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9.14 DISPUTE RESOLUTION. In the event the parties hereto are unable to
resolve any dispute in connection with this Agreement, the parties may mutually
agree to arbitrate as set forth below.
a. 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, then the parties stipulate to arbitration before a
retired judge sitting on the Los Angeles, California, Judicial Arbitration
Mediation Services (JAMS) panel.
b. The substantive law of the State of California shall be applied by the
arbitrator.
c. Arbitration shall take place in Los Angeles, California, unless Seller
and a majority of the other 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.
d. All decisions of the arbitrator shall be final, binding and conclusive
on the parties and shall constitute the only method of resolving disputes or
matters 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.
e. 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.
f. Notwithstanding the foregoing, any and all arbitration proceedings are
conditional upon such proceedings being covered within the parties' respective
risk insurance policies.
9.15 ATTORNEYS' FEES. Should any of the parties hereto institute any
action or procedure to enforce this Agreement or any provision hereof (including
without limitation, arbitration), or for damages by reason of any alleged breach
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, by means of 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.
9.16 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 transactions contemplated by this Agreement and the
intentions of the parties hereto.
9.17 RIGHTS CUMULATIVE. The various rights and remedies herein granted to
the respective parties hereto shall be cumulative and in addition to any other
rights any such party may
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be entitled to under law. The exercise of one or more rights or remedies by
a party shall not impair the right of such party to exercise any other right
or remedy, at law or equity.
IN WITNESS WHEREOF, Seller, Shareholder, and Buyer execute this Agreement
by their duly authorized representatives as set forth below.
"BUYER" "SELLER"
Prospect Medical Systems, Inc., a Prospect Medical Group, Inc.,
Delaware corporation a California professional
corporation
By: Xxxxx XxXxxxxx By: Xxxxx XxXxxxxx
------------------------------- -------------------------------
___________________, President Its:_______________________________
"SHAREHOLDER"
Xxxxx XxXxxxxx
-----------------------------------
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SPOUSAL JOINDER AND CONSENT
I am the spouse of Xxxxx XxXxxxxx, M.D., a shareholder (the "Shareholder") of
Prospect Medical Group, Inc., a California professional medical corporation
("Prospect Medical Group, Inc."). To the extent that I have any interest in any
of the Assets (as that term is defined in the Amended and Restated Assignable
Option Agreement (the "Assignable Option Agreement"), entered into as of this
date, by and among Prospect Medical Systems, Inc., the Shareholder and Prospect
Medical Group, Inc.), I hereby join in the Assignable Option Agreement and agree
to be bound by its terms and conditions to the same extent as my spouse. I have
read the Assignable Option Agreement, understand its terms and conditions, and
to the extent that I have felt it necessary, have retained independent legal
counsel to advise me concerning the legal effect of the Assignable Option
Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that Prospect Medical Systems, Inc., as Buyer, is
significantly relying on the validity and accuracy of this Spousal Joinder and
Consent in entering into the Assignable Option Agreement.
Executed this 2nd day of September, 1998.
Signature: Xxxx X. XxXxxxxx
-------------------
Printed or Typed Name: Xxxx X. XxXxxxxx
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EXHIBIT A
ASSETS
1. All contracts and agreements, including all payor contracts, vendor
contracts, loan agreements, leases and subleases.
2. All risk pool or other incentive arrangement payments relating to the
Practice, including hospital incentive funds, and any capitation advances to
physicians.
3. All cash, bank balances, monies in possession of any bank, other cash
items, marketable securities of Seller and prepaid deposits relating to the
Practice.
4. All accounts receivable of Seller ("Accounts Receivable") relating to the
Practice. As used herein, "Accounts Receivable" shall include all rights to
payment for goods or services rendered, whether or not yet earned by
performance, all other obligations and receivables from others no matter how
evidenced relating to the Practice, including purchase orders, notes,
instruments, drafts and acceptances and all guarantees of the foregoing and
security therefor, relating to the Practice.
5. All supplies and inventory relating to the Practice.
6. All patient records, files and X-rays relating to the Practice.
7. All of Seller's goodwill relating to the Practice, which may include
location goodwill, name recognition goodwill, patient allegiance, etc.
8. All business, financial and accounting records and books of account
relating to the Practice, exclusive of Seller's Articles, Bylaws, corporate
minutes, stock shares and general ledger.
9. Seller's right to reimbursement for all professional services provided to
managed care and fee-for-service patients relating to the Practice.
10. All of Seller's furniture, fixtures, leasehold improvements, machinery,
equipment, inventories, supplies and other like tangible personal property used
in the Practice.
11. All trademarks, trade names, fictitious business names, copyrights, logos,
licenses, ownership interests in telephone numbers at the Practice, or related
items of Seller that in any way pertain to the Practice.
EXHIBIT B
STOCK
Stock has been pledged to Imperial Bank, a California banking corporation
("Bank"), pursuant to the terms of that certain Amended and Restated Credit
Succession Agreement, dated as of July 14, 1997, by and among Bank, Prospect
Medical Holdings, Inc., a Delaware corporation, Prospect Medical Systems, Inc.,
a Delaware corporation, Prospect Medical Group, Inc., a California professional
corporation, Santa Xxx/Tustin Physicians Group, Inc., a California professional
corporation, and Xxxxx XxXxxxxx, M.D.
EXHIBIT C
INDIVIDUAL NON-COMPETITION AGREEMENT
