AGREEMENT FOR
THE PURCHASE AND SALE OF STOCK
OF
SIERRA PRIMARY CARE MEDICAL GROUP, INC.
BY AND AMONG
PROSPECT MEDICAL GROUP, INC.,
A CALIFORNIA PROFESSIONAL CORPORATION
PURCHASER
AND
SIERRA PRIMARY CARE MEDICAL GROUP, INC.,
A CALIFORNIA PROFESSIONAL CORPORATION
COMPANY
AND
SINNADURAI X. XXXXXXX, M.D.,
KARUNYAN XXXXXXXXXXXX, M.D. AND
THE XXXXXXXXXXXX CHARITABLE REMAINDER TRUST
SELLERS
TABLE OF CONTENTS
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1. PURCHASE AND SALE OF STOCK:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE PRICE OF STOCK: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Purchase Price Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Payment of the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 Other Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.5 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS:. . . . . . . . . . . . . . . . .3
3.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.3 No Consent Required; No Violations. . . . . . . . . . . . . . . . . . . . . . .4
3.4 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.5 Financial Statements, Books and Records . . . . . . . . . . . . . . . . . . . .4
3.6 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.7 Conduct of Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.8 No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.10 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.11 Right to Premises; Condition of the Property and Premises . . . . . . . . . . .7
3.12 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.13 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.14 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.15 No Litigation and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.16 Violation of Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.17 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.18 No Bankruptcy Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.19 Licensure and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.20 Employees and Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Employee Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.22 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.23 Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.24 Environmental Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.25 Primary Care Physicians . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.26 Bank Accounts; Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.27 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.28 Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . . . 13
3.29 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.30 Securities Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.31 No Untrue Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER:. . . . . . . . . . . . . . . 13
4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 No Violation of Other Obligations . . . . . . . . . . . . . . . . . . . . . . 14
4.5 No Consent Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 No Bankruptcy Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.7 No Untrue Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.9 No Intent To Distribute . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10 No Litigation and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.11 Violation of Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.12 Licensure and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.13 Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. OTHER COVENANTS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Guaranty of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Audit Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.4 Sierra Medical Group Partnership Interests. . . . . . . . . . . . . . . . . . 17
5.5 Sellers' Access to Company Records. . . . . . . . . . . . . . . . . . . . . . 17
5.6 Execution of Assignable Option Agreement. . . . . . . . . . . . . . . . . . . 17
5.7 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Termination of Cross Purchase Agreement . . . . . . . . . . . . . . . . . . . 18
5.9 Company's Employees; Prior Service Credit . . . . . . . . . . . . . . . . . . 18
6. PURCHASERS' ACCESS TO RECORDS; CONFIDENTIAL INFORMATION; PUBLICITY:. . . . . . . . . 18
6.1 Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7. CLOSING; CONDITIONS TO OBLIGATIONS TO CLOSE: . . . . . . . . . . . . . . . . . . . . 19
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Deliveries by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Conditions to Purchaser's Obligations . . . . . . . . . . . . . . . . . . . . 21
7.5 Conditions to Seller's Obligation . . . . . . . . . . . . . . . . . . . . . . 22
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8. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Seller's Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Purchaser's Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.4 Payment; Purchaser's Right to Offset. . . . . . . . . . . . . . . . . . . . . 24
8.5 Limitation of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9. PURCHASER'S CANCELLATION OF STOCK PURCHASE AGREEMENT . . . . . . . . . . . . . . . . 25
9.1 Jeopardy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Exercise of Cancellation Option . . . . . . . . . . . . . . . . . . . . . . . 25
10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . 26
10.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.6 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.9 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.10 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.12 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.13 Exhibits and Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.14 Survival of Indemnification, Representations and Warranties . . . . . . . . . 28
10.15 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.16 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.17 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.18 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.19 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.20 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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AGREEMENT FOR THE PURCHASE AND SALE OF STOCK
THIS AGREEMENT FOR THE PURCHASE AND SALE OF STOCK ("Stock Purchase
Agreement") is made and entered into as of the 23rd day of September, 1997, by
and among Prospect Medical Group, Inc., a California professional corporation
("Purchaser"), as buyer, Sinnadurai X. Xxxxxxx, M.D. ("Xx. Xxxxxxx"), Karunyan
Xxxxxxxxxxxx, M.D. ("Xx. Xxxxxxxxxxxx") and Karunyan Xxxxxxxxxxxx, M.D. as
Trustee of the Xxxxxxxxxxxx Charitable Remainder Trust (the "Trust") (each a
"Seller"; together "Sellers") and Sierra Primary Care Medical Group, Inc., a
California professional corporation ("Company").
R E C I T A L S
This Stock Purchase Agreement is made with reference to the following facts
and circumstances:
A. Sellers own all of the capital stock of the Company, which owns and
operates two medical practices (together, the "Practice"), which provide
professional medical services in the cities of Palmdale and Lancaster, located
in Los Angeles County, California;
X. Xxxxxxx desire to sell to Purchaser and Purchaser desires to purchase
from Sellers all of the issued and outstanding stock (the "Stock") of the
Company on the terms and conditions set forth in this Stock Purchase Agreement.
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 hereby agree as
follows:
1. PURCHASE AND SALE OF STOCK:
On the "Closing Date" (as defined in Section 7.1 herein), Sellers shall
sell and assign to Purchaser, and Purchaser shall acquire from Sellers, all
right, title and interest in and to the Stock, free and clear of all liens,
mortgages, pledges, claims, security interests, title defects, encumbrances,
charges and other restrictions of every kind (collectively, the "Liens") on the
terms and subject to the conditions set forth in this Stock Purchase Agreement.
2. PURCHASE PRICE OF STOCK:
2.1 CONSIDERATION. Subject to the terms and conditions of this Stock
Purchase Agreement, in reliance on the representations, warranties and covenants
of the parties hereto and in full consideration of the sale, assignment and
delivery of the Stock, Purchaser shall pay to the Sellers, or cause to be issued
to Sellers, as applicable (i) Five Million Six Hundred Twenty Five Thousand
Dollars ($5,625,000) in cash, plus (ii) two promissory notes ("Notes") in the
aggregate principal amount of Two Million Two Hundred Fifty Thousand Dollars
($2,250,000) in the form of those attached hereto as Exhibits 2.3(a)(i) and
2.3(a)(ii), plus (iii) options to purchase 31,500 shares of the $0.01 par value
common stock (the "Options") of Prospect Medical Holdings, Inc., a Delaware
corporation ("Prospect Medical Holdings") at an exercise price of $5.00 per
share, in the form of
those attached hereto as Exhibits 2.1(a) and 2.1(b) in accordance with Section
2.3 below (the "Purchase Price").
2.2 PURCHASE PRICE ALLOCATION. The Purchase Price shall be divided and
allocated among the Sellers as follows:
CASH NOTE OPTIONS
---------- ---------- -------
Xx. Xxxxxxxxxxxx $2,025,000 $1,125,000 15,750
Xx. Xxxxxxx $2,812,500 $1,125,000 15,750
Trust $787,500 -0- -0-
2.3 PAYMENT OF THE PURCHASE PRICE.
(a) Purchaser shall pay Sellers in the aggregate, Five Million Six
Hundred Twenty Five Thousand Dollars ($5,625,000) in cash. Such cash
consideration shall be paid at the Closing, at which time the Notes will be
signed by Purchaser and delivered to Sellers.
(b) All sums payable in cash as set forth in Section 2.1 shall be
payable to Sellers by way of wire transfer or cashier's check of immediately
available funds into a deposit account designated in writing by Sellers.
2.4 OTHER CONSIDERATION. As additional consideration for the execution of
this Stock Purchase Agreement and the transactions contemplated hereby, the
parties agree as follows
(a) Purchaser (or Company) shall enter into three year employment
agreements effective as of the Closing, with each of Xx. Xxxxxxx and Xx.
Xxxxxxxxxxxx, respectively, in the form of those set forth as Exhibits 7.2(f)(i)
and 7.2(f)(ii) attached hereto.
(b) Purchaser also agrees to use its best efforts to cause Prospect
Medical Holdings to issue the Options.
(c) Purchaser or its affiliates shall direct, on behalf of Company,
the payment of $250,000 to Xxxx Xxxx, M.D. ("Xx. Xxxx"), in consideration of Xx.
Xxxx assigning his interest in Sierra Medical Group, a California general
partnership (the "Partnership") to the Company.
2.5 FAIR MARKET VALUE. The parties agree that the Purchase Price reflects
the fair market value of the Stock and Non-Competition Agreements as valued by a
third party, independent appraiser in accordance with accepted business
practices for valuing the stock of professional medical practices. The parties
agree no consideration is or will be paid for the value of any referrals (direct
or indirect) to or from Purchaser, Sellers, or any of their affiliates.
2.6 EXPENSES. Sellers shall be individually responsible for all federal,
state and local taxes, transfer tax and documentary stamps, if any, through and
including the date of Closing attributable to or arising out of the sale of the
Stock to Purchaser and the arrangements in connection with the Closing of such
sale. Further, Sellers agree that the Company's legal fees in excess of $30,000
shall be paid for by them individually.
2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS:
Sellers represent and warrant to Purchaser that the statements contained in
this Article 3 will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Stock Purchase Agreement throughout this Article 3), except as otherwise
specifically set forth in the schedules attached hereto and initialed by the
parties. The schedules are numbered and lettered to correspond to the numbered
and lettered sections contained in this Article 3. Notwithstanding the
foregoing, it is understood and agreed that the matters set forth in Schedules
3.13(e), 3.15(b), 3.20, 3.21, 3.23, 3.26 and 3.27 are not intended to be
exceptions to such representations and warranties, but are in response to
information requested by such representations and warranties.
3.1 ORGANIZATION. Company is a California professional corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Company has all requisite authority to own, lease, and operate its
business and to carry on its business as currently being conducted. Company is
duly qualified to transact its business in the State of California and does not
conduct business in any other state.
3.2 AUTHORIZATION. Sellers have good title to the Stock, and full right,
power, authority and legal capacity, to sell the Stock, to execute and deliver
this Stock Purchase Agreement, and to carry out the transactions contemplated
hereby without the consent of any other person. All action on the part of
Sellers and Company necessary for the authorization, execution, delivery and
performance of this Stock Purchase Agreement and the consummation of the
transactions contemplated hereby has been or will be taken prior to the Closing
Date, and this Stock Purchase Agreement (including exhibits, schedules and the
ancillary agreements) constitutes the legal, valid and binding obligation of
Sellers, enforceable in accordance with its terms, except as enforceability may
be restricted, limited or delayed by applicable bankruptcy, insolvency,
fraudulent conveyance or other laws affecting creditor's rights generally and
except as enforceability is subject to general principles of equity. At the
Closing, Purchaser will acquire good title to the Stock free and clear of all
Liens. Sellers are the only shareholders of Company. The authorized number of
shares of Company is Five Thousand (5,000), all of one class, of which only One
Thousand (1,000) shares are issued and outstanding, fully paid and nonassessable
and held by Sellers. Of such 1,000 outstanding shares, 500, 400 and 100 shares
are owned by Xx. Xxxxxxx, Xx. Xxxxxxxxxxxx and the Trust, respectively. The
Stock was issued in compliance with all applicable federal and state securities
laws. Except as set forth in Schedule 3.2, Sellers have full voting power over
the Stock, subject to no outstanding subscriptions, options, rights, convertible
securities, preemptive rights, buy-sell agreements, or any agreements or
commitments of any kind that obligate Company or the Sellers to (a) purchase or
otherwise receive or be issued any shares of Stock or any security or liability
of any kind convertible into or exchangeable for any such Stock, (b) receive any
benefits or rights similar to any rights enjoyed by or accruing to the holder of
shares of capital stock of Company, (c) convert or exchange any securities for
shares of Stock, (d) participate in the equity, income or election of directors
or officers of Company, or (e) take or refrain from taking any actions as
shareholders of the Company. Other than this Agreement and the transactions
contemplated hereby, there is no contract, commitment or agreement between
Sellers and any other person with respect
3
to the disposition of any shares of the Stock. At the Closing, the Stock
will represent all right, title and interest in the Practice.
3.3 NO CONSENT REQUIRED; NO VIOLATIONS. Except as set forth in Schedule
3.3, neither the execution of this Stock Purchase Agreement by Sellers, nor the
performance by Sellers of their obligations hereunder requires the consent of
any third party, which has not been obtained and delivered to Purchaser. Except
as set forth in Schedule 3.3, neither this Stock Purchase Agreement nor any of
the transactions contemplated hereunder violates or shall violate any lease,
contract, document, understanding, agreement or instrument to which the Company
or any of the Sellers is a party or by which the Company or a Seller may be
bound. Except as set forth in Schedule 3.3, neither this Stock Purchase
Agreement nor any of the transactions contemplated hereunder violates, or shall,
to the best knowledge of Sellers, violate, conflict with, result in a default
under or breach any legally protected right of any individual or entity or the
articles of incorporation or bylaws of the Company.
3.4 NO DEFAULT. Except as set forth in Schedule 3.4, Company is not in
default under the terms of any lease, contract, document, understanding,
agreement or instrument to which it is a party or by which it is bound, nor has
any event occurred that will constitute a default by Company under any of the
same following the passage of time or consummation of any of the transactions
contemplated hereunder, nor has Company or Sellers received any notice of any
default under any of the same. To the best knowledge of the Sellers, except as
set forth in Schedule 3.4, no acceleration or other right to accelerate,
terminate, modify, cancel, create a security interest, or otherwise change any
existing agreement will be created as a result of the consummation of any of the
transactions contemplated hereunder.
3.5 FINANCIAL STATEMENTS, BOOKS AND RECORDS. Sellers have previously
delivered to Purchaser (i) an audited statement of operations and accumulated
deficit, statement of cash flows and notes for the fiscal year ended
December 31, 1996, and the Company's audited balance sheet at December 31, 1996
(the "Audited Company Financial Statements"); and (ii) an unaudited statement of
operations and accumulated deficit, statement of cash flows for the fiscal
period ended June 30, 1997, and the Company's unaudited balance sheet at
June 30, 1997 (the "Unaudited Company Financial Statements"). The audited
balance sheet of Company is hereinafter referred to as the "Company Balance
Sheet," and the Audited Company Financial Statements and Unaudited Company
Financial Statements are hereinafter referred to collectively as the "Company
Financial Statements." The Audited Company Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved, and fairly present the financial position of Company and the
results of its operations as of the date and for the periods indicated thereon.
At the date of the Company Balance Sheet (the"Company Balance Sheet Date") and
as of the Closing Date, Company will have no liabilities or obligations, secured
or unsecured (whether accrued, absolute, contingent or otherwise) not reflected
on the Company Balance Sheet or the accompanying notes thereto except for
liabilities incurred in the ordinary course of business since the date of said
balance sheet which are usual and normal in amount and those liabilities which
are set forth in Schedule 3.5. The reserves reflected in the Audited Company
Financial Statements for IBNR are adequate provisions for such liabilities and
have been established in accordance with GAAP consistently applied.
4
3.6 ACCOUNTS RECEIVABLE. The accounts receivable of the Company in the
Company Financial Statements and arising thereafter (the "Accounts Receivable")
to the extent uncollected as of the date hereof, are valid and existing and
represent monies due for services performed and are not subject to any liens,
pledges, claims, security interests, title defects, encumbrances, charges and
other restrictions other than normal allowances, contractual adjustments and
reserves for uncollectibles; there are no other refunds, discounts or setoffs
payable or assessable with respect to the Accounts Receivable. To the best
knowledge of the Sellers, the Accounts Receivable are not subject to any
defenses, counterclaims or set-offs and collection of the Accounts Receivable
has been in the ordinary course of business.
3.7 CONDUCT OF PRACTICE. Between the date of the execution of this Stock
Purchase Agreement and the Closing, Sellers shall (a) cause the Company to carry
on the Practice in substantially the same manner as it has previously done, (b)
use their best efforts to maintain and preserve the assets of Company in good
condition and repair, and to prevent the imposition of any Liens on such assets,
(c) use their best efforts to preserve the Practice and its relationships with
all patients and payors, (d) not liquidate or dissolve Company, take any steps
to do same, or inform any third person or entity that Company or Sellers have
done or intend to do the same, (e) not permit the Company to enter into any
material agreements without the written consent of Purchaser, which consent
shall not be unreasonably withheld, and (f) not permit the Company to enter into
any material transactions not in the ordinary course of business without the
written consent of Purchaser, which consent shall not be unreasonably withheld.
3.8 NO MATERIAL CHANGES.
(a) Except as contemplated hereby or consented to by Purchaser,
between the date of this Stock Purchase Agreement and the Closing there will not
have been:
(i) any material adverse change in the Practice. For the
purpose of this Section 3.8, "material adverse change" shall mean a net
reduction in the number of the Company's covered lives of more than five percent
(5%) from February 28, 1997. As of such date, Company had 15,102 covered lives.
Covered lives shall be limited to patients who are enrolled in prepaid health
plans with which the Company contracts as a provider;
(ii) any voluntary or involuntary sale, assignment, license or
other disposition, of any kind, of any material property or material right of
the Practice other than as set forth in Schedule 3.8(a)(ii); or
(iii) resignations by, or terminations of, four or more
employee-physicians of the Partnership.
(b) Except as contemplated hereby or consented to by Purchaser,
between the date of this Stock Purchase Agreement and the Closing, neither
Seller nor Company:
(i) shall incur any debts, liabilities or obligations of any
kind, whether absolute or contingent, due or to become due, or any security
interests, liens, loans encumbering the
5
Practice, or any other encumbrances incurred by Company or by Sellers in
connection with the Practice except for:
A. current liabilities incurred for services rendered or
goods supplied in the ordinary course of the operations of the Practice;
B. liabilities on account of taxes and governmental
charges not yet due, but not penalties, interest or fines in respect thereof; or
C. obligations or liabilities incurred by virtue of the
execution of this Stock Purchase Agreement.
(ii) shall pay any extraordinary compensation, bonuses or
distributions to Sellers, or any employee of Company or Sellers, except as set
forth on Schedule 3.8(b)(ii) hereto. Notwithstanding the foregoing, Purchaser
agrees that Company will pay bonuses to its employees and/or shareholders in a
manner that is consistent with past practices.
(c) Except for the transactions contemplated by this Stock Purchase
Agreement, or consented to by Purchaser, the Company shall have at the Closing:
(i) a current ratio of no less than the current ratio derived
from the Audited Company Financial Statements;
(ii) no increase in the amount of long term liabilities reported
in the Audited Company Financial Statements; and
(iii) no decrease in stockholders' equity reported in the
Audited Company Financial Statements;
3.9 TAXES. Except as set forth in the Company Financial Statements there
are no delinquent federal or state corporate income or franchise taxes or any
federal, state or local corporate income or franchise tax assessments due or
owing by Company. No extensions of time or requests therefor or waiver thereof
have been made or are presently pending or effective with respect to such
reports, returns or taxes ("Taxes"). Company has timely filed or will cause to
be filed on its own behalf and on behalf of the Partnership all tax returns
(federal, state and local) required to be filed on or before the Closing Date,
and all Taxes shown to be due and payable on said returns have been paid. There
are no actions, suits, proceedings, investigations, audits, claims or liens now
pending against or related to Company or the Partnership regarding any tax or
assessment. No claim for any additional tax, assessment or reassessment is
being asserted against the Company or proposed by any tax authority; and Sellers
have not been notified of, and there are no facts or circumstances known to the
Company or Sellers which could result in any claim being asserted with respect
to any such Taxes. There is no action, dispute, suit, proceeding, investigation
or audit pending or threatened against the Company in respect of any Taxes.
6
3.10 TITLE TO ASSETS. The assets of the Company are free and clear of all
Liens except as expressly described in Schedule 3.10.
3.11 RIGHT TO PREMISES; CONDITION OF THE PROPERTY AND PREMISES. Company
(i) has valid and enforceable leases for the premises in which the offices of
the Practice are located ("Premises") and (ii) there are no unpaid rental
payments or any other applicable amounts now due and payable by Company with
respect to the Premises or any uncured default by Company, and no governmental
condemnation proceedings are threatened or in process. To the best knowledge of
the Sellers, all of Company's fixtures, equipment and furniture in the Premises
are (a) in good repair and operating condition, (b) free from any material
defects, except for normal wear and tear, and (c) fit for the purposes for which
they are being used.
3.12 INVENTORY. On the Closing Date, the inventory set forth in the
Company Financial Statements, and otherwise reflected in the Company books and
records, shall consist of items of a quality and quantity normally maintained on
hand by Company and in compliance with all applicable laws and regulations.
3.13 CONTRACTS.
(a) Sellers have furnished to Purchaser, for Purchaser's inspection
and review, true and complete copies of all contracts, agreements, leases,
documents, written understandings, instruments, loan documents and security
agreements to which the Company is a party, and any and all other documents
concerning any Liens against the Stock or any asset of the Company, in each case
in excess of $10,000.
(b) There are no guarantees by the Company of any obligations or
indebtedness whatsoever of the Sellers, or any third person or entity.
(c) The Company and Sellers are not parties to, or bound by, any
contract which in any manner limits or restricts them from competing in any line
of business or carrying on or expanding the nature or geographical scope of
their business.
(d) The contracts of Company referred to in Section 3.13(a) are
valid, binding and enforceable obligations and in full force and effect and have
been entered into in the ordinary course of business or otherwise, consistent
with past practice, except as enforceability may be restricted, limited or
delayed by applicable bankruptcy, insolvency, fraudulent conveyance, or other
laws affecting creditor's rights generally and except as enforceability is
subject to general principles of equity. Company and Sellers have not received
any notice from any other party to a contract of the termination or threatened
termination, thereof, nor any material claim, dispute or controversy with
respect thereto, and to Seller's best knowledge, no other event has occurred
which would allow any other party to terminate any such contract of Company, nor
have Sellers received notice of any asserted claim of default, breach or
violation of, any such contract which failure of performance or default would be
materially adverse to the business, condition (financial or otherwise),
operations, results of operations, net worth, working capital, assets, reserves
or prospects of Company, taken as a whole, except as set forth in Schedule 3.13.
7
(e) Schedule 3.13(e) attached hereto contains a true and complete
list of all leases pursuant to which the Company leased or leases any real
property interest (the "Leases"), whether as lessor or lessee. The Company
enjoys peaceful and undisturbed possession under all of the Leases under which
they are lessee, and none of the Leases is in default in any material respect.
3.14 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of Company or Sellers, except as set forth in Schedule 3.14.
3.15 NO LITIGATION AND INSURANCE. Except as set forth in Schedule 3.15,
there is no pending litigation, judgment, appeal, investigation or asserted
claim ("Action") or, to Company's and Sellers' best knowledge, any threatened
Action relating to the Company or employees thereof, and Sellers are not aware
of any facts or circumstances existing as of July 15, 1997, which could serve as
a basis for an Action against or affecting the Company or which seeks or
threatens to restrain, enjoin or prohibit or to obtain damages from the Company.
Except as set forth in Schedule 3.15(a), neither Company nor Sellers are subject
to any judgment, decree, order or writ of any court, agency, authority,
arbitration panel or other tribunal which would materially and adversely affect
the Company. The Company has maintained with financially responsible insurance
companies insurance in such amounts and against such risks and losses as is
customary for persons or companies engaged in its business, including insurance
against personal injury, property damage to third persons and medical
malpractice. Set forth in Schedule 3.15(b) is a list of all policies of
liability, property damage, fire, workers' compensation, employer's liability,
malpractice, casualty or other forms of insurance owned or carried by the
Company and the names of insurance agents and/or brokers providing this
insurance coverage, and of all performance bonds and letters of credit securing
any of their obligations or maintained in the conduct of their businesses. All
such insurance is in full force and effect on the date hereof as evidenced by
certificates of insurance for each insurance policy listed in Schedule 3.15(b),
of which true and complete copies dated no more than twenty (20) business days
prior to the date of Closing shall be delivered to Purchaser at the Closing.
Neither the Company nor the Sellers have received any notification from any
insurance carrier denying or disputing any claim made on any policies, denying
or disputing any coverage for any claim, denying or disputing the amount of any
claim, or regarding the possible cancellation or material limitation of any such
policies, all of which will be in effect at the Closing Date unless provision
has been made for the cancellation thereof as of the Closing Date with the
consent of the Purchaser.
3.16 VIOLATION OF LAWS. To the best knowledge of the Sellers, neither
Company nor Sellers are in violation of any law, rule, regulation or
administrative or judicial order pertaining to the Practice and which is
material to the conduct of the Practice (including, without limitation,
licensing, health care, drug enforcement, securities, zoning, building,
environmental, immigration, civil rights and occupational health and safety
laws, regulations, ordinances and codes) and there is no law, rule, regulation
or administrative or judicial order that any of the transactions contemplated by
this Stock Purchase Agreement would violate where such violation would have a
materially adverse effect on the Company. The Company has not been charged
with, threatened with, nor is under any investigation with respect to, any
charge concerning any violation of any provision of any such law, rule,
regulation or order.
8
3.17 NO BROKERS OR FINDERS. Neither Company nor Sellers have 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 Stock
Purchase Agreement, and if either Company or Sellers incurred any such
liability, such liability shall be and remain the sole responsibility of the
Sellers, and Company and Sellers shall indemnify, defend and hold Purchaser
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.
3.18 NO BANKRUPTCY PROCEEDINGS. Neither Company nor any Seller on behalf
of Company has (a) made a general assignment for the benefit of creditors, (b)
filed any voluntary petition in bankruptcy or suffered the filing of an
involuntary petition by its creditors, (c) suffered the appointment of a
receiver to take possession of all or substantially all of its assets, (d)
suffered the attachment or other judicial seizure of all, or substantially all,
of its assets, (e) admitted in writing its inability to pay its debts as they
come due, or (f) made an offer of settlement, extension or compromise to its
creditors generally.
3.19 LICENSURE AND REIMBURSEMENT. Sellers and Company represent and
warrant that:
(a) Each of Sellers' and Company's (including the Partnership)
employee-physicians is duly licensed to practice medicine in the State of
California; and Company has all licenses, permits, approvals, authorizations,
consents, franchises and orders of all governmental and regulatory authorities
(collectively, the "Permits") necessary for the conduct of its business as
presently conducted. There is no proceeding pending or threatened that disputes
the validity of any such Permit or, to the best knowledge of Sellers, that may
result in the revocation, cancellation or suspension or any material adverse
modification of any of such Permits.
(b) Company is participating as a provider in the Medicare and
Medi-Cal programs and in other governmental health care payment programs, and
has been and will continue to be authorized to receive reimbursement from
such programs for fees and charges incurred for their services by eligible
patients. Neither Company nor Sellers have received any notice that any such
participation or authorization has been or is threatened to be terminated or,
in any material respect, restricted, and neither Company nor Sellers know of
any basis for any such termination or restriction. There is no federal or
state investigation pending or, to the best of Company's and Seller's
knowledge, contemplated, that will have a materially adverse impact upon
Company's reimbursement status or on any employed Physician's license to
practice medicine in California. Neither Company nor Sellers have received
any notice of action nor, to the best of their knowledge, is there any
threatened or likely action by the Medicare or Medi-Cal program or any
carrier, to recoup or challenge any Medicare or Medi-Cal reimbursement that
Company or Sellers have received or for which any of them currently has a
claim pending, for services rendered at or in connection with the Practice,
except in each case adjustments to billed amounts to comply with HCFA
reimbursement rates or other applicable reimbursement schedules.
(c) To the best knowledge of Sellers, all billing practices by
Company to all third party payors, including but not limited to the Medicare and
Medi-Cal programs and private insurance companies, have been correct and in
compliance with all applicable regulations and policies of all
9
such third party payors, and Company has not billed for or received any
payment or reimbursement in excess of amounts permitted by law.
(d) To the best knowledge of Sellers, neither Company, its
directors, officers, employees, affiliates or agents, nor Sellers or their
affiliates or agents on behalf of the Company, have 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 Company in order
to obtain business or payments from such persons, not in the ordinary and lawful
course of business; (ii) given or received, or agreed to give or receive, or are
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 services) to any customer or potential customer,
supplier or potential supplier, contractors, third party payor or any other
person not in the ordinary and lawful course of business; (iii) made or agreed
to make, or are 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 laws 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 are 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) To the best knowledge of Sellers, neither Company, its
directors, officers, employees or agents, nor Sellers are or during the past
twenty-four months have been, 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 and did make, receive or influence
referrals to or from Company, provide services, lease space, lease equipment or
engage in any other venture or activity in any manner which was not in
compliance with applicable law.
3.20 EMPLOYEES AND EMPLOYEE BENEFITS. Schedule 3.20 contains a complete
list of the names, positions and current annual salaries or wage rates and
all bonus and other compensation arrangements of any kind, of all full-time
and part-time employees, directors or officers of the Company (including
physicians employed by the Partnership), specifying their names, titles, full
or part-time status and aggregate compensation payable to each, by means of
wages, salaries, bonuses, or otherwise and all salary increases and/or
bonuses payable to any employee between the date of this Stock Purchase
Agreement and the Closing. Sellers shall fully accrue, prior to the Closing
(assuming the Closing occurs on the date set forth in Section 7.1) with
respect to each person listed on Schedule 3.20, the aggregate amount of: (a)
accrued vacation and sick leave pay, (b) employer contributions accrued or
committed under each pension, profit-sharing, medical, dental, life insurance
or retirement plan or similar arrangement (provided that, with the consent of
Purchaser, which shall be held harmless from liability by Sellers, these
amounts may be paid on the date on which such contributions would be due in
the absence of this Stock Purchase Agreement), and (c)
10
any other accrued benefits to which each person listed on Schedule 3.20 or
such persons who have terminated as of the Closing Date may be entitled, as
accrued up to and including the Closing. Company was not a party to or bound
by any collective bargaining agreement or any other agreement with a labor
union and to the best knowledge of Sellers, there has been no effort by any
labor union during the twenty-four (24) months prior to the Closing to
organize any employees of Company (or the Partnership) into one or more
collective bargaining units. There has been no strike, walkout or work
stoppage involving any of the employees of Company during the twenty-four
(24) months prior to the date of Closing. There is not pending or, to the
best knowledge of Sellers, threatened, any labor dispute, strike or work
stoppage which affects or which may affect Company or which may interfere
with its continued operation in any manner.
3.21 EMPLOYEE ENTITLEMENTS. Except as described on Schedule 3.21 Company
does not maintain, contribute to or sponsor, and has not at any time maintained,
contributed to or sponsored: (a) any non-qualified deferred compensation or
retirement plans or arrangements, (b) any qualified defined contribution
retirement plans or arrangements, (c) any qualified defined benefit pension
plan, (d) any other profit-sharing, deferred compensation, bonus, stock option,
stock purchase, vacation pay, holiday pay, employee benefit, health, welfare,
medical, disability, life insurance, stock, stock purchase or stock option plan,
program, agreement, arrangement or policy under which former employees or
beneficiaries are entitled or current employees will be entitled following
termination of employment, to medical, health or life insurance or other
benefits other than pursuant to benefit continuation rights granted by state or
federal law (collectively, "Benefit Plans"), or (e) any summary description of
the foregoing that has been distributed to employees. True and complete copies
of each Benefit Plan, related trust agreements or annuity contracts (or any
other funding instruments), the most recent determination letter issued by the
Internal Revenue Service (the "IRS") with respect to each Benefit Plan that is a
"pension plan" as defined in Section 3 of ERISA, Annual Reports on Form 5500
Series required to be filed with any governmental agency for any such Benefit
Plan for the two (2) most recent plan years and all actuarial reports prepared
for the last three (3) years of each Benefit Plan that is a pension plan, other
than an "individual account plan," have heretofore been delivered by Sellers to
Purchaser. Prior to the Closing, Company will have adopted a resolution of its
board of directors and shareholders terminating or suspending Company's Benefit
Plan and suspending payments thereto, pending confirmation of such termination
or suspension, unless Company and Purchaser arrive at an understanding to enable
participants in Company's Benefit Plan to become participants in Purchaser's
Benefit Plan.
3.22 CONFIDENTIALITY. To the best knowledge of Sellers, the Company has
maintained the confidentiality of all business and patient records as required
by and in conformance with all applicable state and federal laws and regulations
and Company has not transferred any patient records to any individual or entity
against the request of any patient regarding transferring his or her patient
information or records.
3.23 INSPECTIONS. Except as described on Schedule 3.23, (a) neither the
Company nor the Practice have been inspected by any governmental agency during
the five (5) years prior to the date hereof; and (b) all matters which were
noted by any such governmental agency as requiring correction or modifications
which were requested or recommended, have been corrected so that the Company, is
to the best knowledge of Sellers, in compliance. In addition, Schedule 3.23
shows the
11
present status of each such noted matter in the event the Company has not
taken or complied with any corrective Action.
3.24 ENVIRONMENTAL CONDITIONS. To the best knowledge of Sellers and the
Company there are no (a) material defects in the physical condition of the
Premises; (b) unremediated material incidents of non-compliance regarding the
Premises with zoning, land use, building, safety and fire laws; and
(c) unremediated material incidents of non-compliance of the Premises with
respect to applicable environmental laws, rules and regulations. To the best
knowledge of Sellers and except as set forth in Schedule 3.24, no "Hazardous
Substances" (as defined below) have been released on any part of the Premises
and no soil, air, surface water, ground water or structural contamination exists
on any of the Premises. As used herein "Hazardous Substances" shall include (i)
all of those substances included within the definitions of "hazardous
substances", "hazardous materials", "toxic substances", or "solid waste" in (a)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), as amended,
(b) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
ET SEQ. ("RCRA"), and (c) the Hazardous Materials Transportation Act, 49 U.S.C.
Appx. Section 1801, ET SEQ., and in the regulations promulgated pursuant to
said laws or any amendment thereto or replacement thereof; (ii) all of those
substances listed in the United States Department of Transportation Table (49
CFR 172.101 and amendments thereto) or by the Environmental Protection Agency
(40 CFR Part 302 and amendments thereto) as hazardous substances; (iii) all of
those substances defined as "hazardous wastes" in Sections 25100 ET SEQ. of the
California Health & Safety Code, or as "hazardous substances" in Sections 25316
and 25281 of the California Health & Safety Code or Section 736(f)(3) of the
California Code of Civil Procedure, or as "waste," "pollution," or
"contamination" in Sections 13000 ET SEQ. of the California Water Code, and in
the regulations promulgated pursuant to said laws or any replacement thereof;
and (iv) all other substances, materials and wastes which are regulated under
applicable local, state or federal law, or which are classified as hazardous or
toxic under federal, state, or local laws or regulations, or classified or
identified as posing a threat to human health or the environment, including
without limitation federal laws and regulations and California law set forth
above, and any radioactive wastes or substances. The term "Hazardous
Substances" does not include consumer products which are used in accordance with
their intended use.
3.25 PRIMARY CARE PHYSICIANS. No primary care physician employed by the
Company or the Partnership, on a full-time or part-time basis, has informed
Company or Sellers of his or her intention to terminate such employment, and
Sellers have no actual knowledge, directly or indirectly, that any such
physician intends to terminate such employment.
3.26 BANK ACCOUNTS; SECURITIES. Schedule 3.26 contains a true, correct and
complete listing of all bank, brokerage, checking, depositary and similar
accounts, lockboxes and safe deposit boxes maintained by the Company as of the
date of Closing and at any time during the twelve (12) month period preceding
the date of Closing; this listing includes with respect to each such account (a)
the account number, (b) the nature or purpose of the account, (c) the name and
address of the institution at which the account is maintained, and (d) the names
of the authorized signatories on the account. Schedule 3.26 also contains a
complete and accurate list of all investments in and securities of other
corporations or businesses owned by the Company, together with a description of
any restrictions affecting the transfer thereof.
12
3.27 SUBSIDIARIES. Except as described in Schedule 3.27, the Company has
no subsidiaries or affiliates and does not directly or indirectly own either an
equity or debt interest in any corporation, partnership, limited liability
company, business trust, joint venture, joint stock company, association or
other business entity except for the Sellers' interest in the Partnership.
3.28 ARTICLES OF INCORPORATION AND BYLAWS. Copies of the Articles of
Incorporation and the Bylaws of the Company as amended to the date hereof,
certified by its Secretary as well as copies of the minute books and stock
records of the Company which have been delivered to Purchaser are true and
complete copies of such instruments as of the date hereof and as of the Closing
Date are and will be in full force and effect on such dates.
3.29 INTELLECTUAL PROPERTY. Schedule 3.29 sets forth a true and complete
list of all patents, trademarks, trade names or service marks that the Company
is licensed under or uses. To the best knowledge of Sellers, none of the
Company's business activities infringes upon the patent, trademark, trade name
or service xxxx rights of any third party.
3.30 SECURITIES LAW COMPLIANCE. Sellers represent and warrant that the
sale of the Stock in the manner contemplated hereby and pursuant hereto, is (a)
exempt from the registration requirements of the Securities Act of 1933, as
amended, and (b) exempt from qualification under the California Corporate
Securities Law of 1968, as amended.
3.31 NO UNTRUE STATEMENTS. Sellers represent and warrant that (a) neither
Company nor Sellers have made any materially untrue statement or representation
in connection with this Stock Purchase Agreement, and (b) neither Company nor
Sellers have failed to state or disclose any material fact in connection with
the transactions contemplated by this Stock Purchase Agreement which under the
circumstances, is required to be disclosed.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER:
Purchaser hereby represents and warrants to Sellers that:
4.1 ORGANIZATION. Purchaser is a California professional corporation
validly existing and in good standing under the laws of the State of California.
All of Purchaser's outstanding shares of capital stock are owned by a single
registered holder who is duly licensed to practice medicine in the State of
California.
4.2 AUTHORITY. Purchaser has the corporate power and authority to enter
into this Stock Purchase Agreement and to consummate the transactions
contemplated hereby. All action on the part of Purchaser necessary for the
authorization, execution, delivery and performance of this Stock Purchase
Agreement and the consummation of the transactions contemplated hereby has been
or will be taken prior to the Closing Date, and this Stock Purchase Agreement
(including exhibits, schedules and the ancillary agreements) constitutes the
legal, valid and binding obligation of Purchaser, enforceable in accordance with
its terms, except as enforceability may be restricted, limited or delayed by
applicable bankruptcy, insolvency, fraudulent conveyance, or other laws
affecting creditor's rights generally and except as enforceability is subject to
general principles of equity.
13
4.3 NO BROKERS OR FINDERS. Except for Legend Capital Corporation,
Purchaser has not 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 Stock Purchase Agreement, and if Purchaser incurred any
such liability, such liability shall be and remain the sole responsibility of
Purchaser, and Purchaser shall indemnify, defend and hold Sellers 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.
4.4 NO VIOLATION OF OTHER OBLIGATIONS. Neither this Stock Purchase
Agreement nor any of the transactions contemplated hereunder violates or shall
violate any lease, contract, document, understanding, agreement or instrument to
which Purchaser is a party or by which it may be bound, or any lease, contract,
document, understanding, agreement or instrument affecting Purchaser. Neither
the execution and delivery of this Stock Purchase Agreement nor the consummation
of the transactions contemplated hereby will conflict with or violate any
provision of the articles of incorporation or bylaws of the Purchaser or of any
law, ordinance or regulation or any decree or order of any court or
administrative or other governmental body which is either applicable to, binding
upon or enforceable against Purchaser.
4.5 NO CONSENT REQUIRED. Except for the consent of Imperial Bank, a
California banking corporation ("Imperial Bank"), neither the execution of this
Stock Purchase Agreement by Purchaser, nor the performance by Purchaser of its
obligations under this Stock Purchase Agreement, requires the consent of any
third party that will not have been obtained and delivered to Sellers prior to
the Closing Date.
4.6 NO BANKRUPTCY PROCEEDINGS. Purchaser has not (a) made a general
assignment for the benefit of creditors, (b) filed any voluntary proceeding in
bankruptcy or suffered the filing of any involuntary petition by Purchaser's
creditors, (c) suffered the appointment of a receiver to take possession of all
or substantially all of the assets, properties or business of Purchaser,
(d) suffered the attachment or other judicial seizure of all or substantially
all of the assets, properties or business of Purchaser, (e) admitted in writing
its inability to pay its debts as such debts become due, or (f) made an offer of
settlement, extension or compromise to its creditors generally.
4.7 NO UNTRUE STATEMENTS. To the best of Purchaser's knowledge, (a)
Purchaser has made no untrue statement or representation in connection with this
Stock Purchase Agreement, and (b) Purchaser has not failed to state or disclose
any material fact in connection with the transactions contemplated by this Stock
Purchase Agreement.
4.8 PERFORMANCE. Purchaser shall perform its obligations under this Stock
Purchase Agreement, including the ancillary agreements and the forms of which
are attached hereto as exhibits.
4.9 NO INTENT TO DISTRIBUTE. Purchaser is acquiring the Stock for its own
account and not with a view toward sale or other distribution thereof.
14
4.10 NO LITIGATION AND INSURANCE. Except as set forth in Schedule 4.10(a),
there is no pending Action relating to the Purchaser or employees thereof, and
Purchaser is not aware of any facts or circumstances existing as of
July 15, 1997, which could serve as a basis for an Action against or affecting
the Purchaser or which seeks or threatens to restrain, enjoin or prohibit or to
obtain damages from the Purchaser. Purchaser is not subject to any judgment,
decree, order or writ of any court, agency, authority, arbitration panel or
other tribunal which would materially and adversely affect the Purchaser.
Purchaser has maintained with financially responsible insurance companies
insurance in such amounts and against such risks and losses as is customary for
persons or companies engaged in its business, including insurance against
personal injury, property damage to third persons and medical malpractice. Set
forth in Schedule 4.10(b) is a list of all policies of liability, property
damage, fire, workers' compensation, employer's liability, malpractice, casualty
or other forms of insurance owned or carried by the Purchaser and the names of
insurance agents and/or brokers providing this insurance coverage, and of all
performance bonds and letters of credit securing any of their obligations or
maintained in the conduct of their businesses. All such insurance is in full
force and effect on the date hereof as evidenced by certificates of insurance
for each insurance policy listed in Schedule 4.10(b), of which true and complete
copies dated no more than twenty (20) business days prior to the date of Closing
shall be delivered to Seller at the Closing. The Purchaser has not received any
notification from any insurance carrier denying or disputing any claim made on
any policies, denying or disputing any coverage for any claim, denying or
disputing the amount of any claim, or regarding the possible cancellation or
material limitation of any such policies, all of which will be in effect at the
Closing Date unless provision has been made for the cancellation thereof as of
the Closing Date with the consent of the Sellers.
4.11 VIOLATION OF LAWS. To the best knowledge of Purchaser, Purchaser is
not in violation of any law, rule, regulation or administrative or judicial
order pertaining to the Purchaser's business and which is material to the
conduct of the Purchaser's business (including, without limitation, licensing,
health care, drug enforcement, securities, zoning, building, environmental,
immigration, civil rights and occupational health and safety laws, regulations,
ordinances and codes) and there is no law, rule, regulation or administrative or
judicial order that any of the transactions contemplated by this Stock Purchase
Agreement would violate where such violation would have a materially adverse
effect on the Purchaser. Purchaser has not been charged with, threatened with,
nor is under any investigation with respect to, any charge concerning any
violation of any provision of any such law, rule, regulation or order.
4.12 LICENSURE AND REIMBURSEMENT. Purchaser represents and warrants that:
(a) Each of Purchaser's employee-physicians is duly licensed to
practice medicine in the State of California; and Purchaser has all Permits
necessary for the conduct of its business as presently conducted. There is no
proceeding pending or threatened that disputes the validity of any such Permit
or, to the best knowledge of Purchaser, that may result in the revocation,
cancellation or suspension or any material adverse modification of any of such
Permits.
(b) Purchaser is participating as a provider in the Medicare and
Medi-Cal programs and in other governmental health care payment programs, and
has been and will continue to be authorized to receive reimbursement from such
programs for fees and charges incurred for their
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services by eligible patients. Purchaser has not received any notice that any
such participation or authorization has been or is threatened to be
terminated or, in any material respect, restricted, and Purchaser does not
know of any basis for any such termination or restriction. There is no
federal or state investigation pending or, to the best of Purchaser's
knowledge, contemplated, that will have a materially adverse impact upon
Purchaser's reimbursement status or on any employed physician's license to
practice medicine in California. Purchaser has not received any notice of
action nor, to the best of its knowledge, is there any threatened or likely
action by the Medicare or Medi-Cal program or any carrier, to recoup or
challenge any Medicare or Medi-Cal reimbursement that Purchaser has received
or for which any of them currently has a claim pending, for services rendered
at or in connection with Purchaser's business, except in each case
adjustments to billed amounts to comply with HCFA reimbursement rates or
other applicable reimbursement schedules.
(c) To the best knowledge of Purchaser, all billing practices by
Purchaser to all third party payors, including but not limited to the Medicare
and Medi-Cal programs and private insurance companies, have been correct and in
compliance with all applicable regulations and policies of all such third party
payors, and Purchaser has not billed for or received any payment or
reimbursement in excess of amounts permitted by law.
(d) To the best knowledge of Purchaser, neither Purchaser, its
directors, officers, employees, affiliates or agents have 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
Purchaser in order to obtain business or payments from such persons, not in the
ordinary and lawful course of business; (ii) given or received, or agreed to
give or receive, or are 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 services) to any customer or
potential customer, supplier or potential supplier, contractors, third party
payor or any other person not in the ordinary and lawful course of business;
(iii) made or agreed to make, or are 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 laws 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 are 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) To the best knowledge of Purchaser, none of Purchaser's
directors, officers, employees or agents are or during the past twenty-four
months have been, 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 and did make, receive or influence referrals to or from
Purchaser, provide
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services, lease space, lease equipment or engage in any other venture or
activity in any manner which was not in compliance with applicable law.
4.13 INSPECTIONS. Except as set forth in Schedule 4.13, (a) the Purchaser
has not been inspected by any governmental agency during the five (5) years
prior to the date hereof; and (b) all matters which were noted by any such
governmental agency as requiring correction or modifications which were
requested or recommended, have been corrected so that the Purchaser is, to the
best knowledge of the Purchaser, in compliance. In addition, Schedule 4.13 sets
forth the present status of each such noted matter in the event the Purchaser
has not taken or complied with any corrective Action.
5. OTHER COVENANTS:
5.1 LEASES. At the Closing, Sierra Medical Management, Inc. or an
affiliate shall enter into five (5) year commercial leases ("Amended Leases")
with the Sellers for the three (3) premises at which Company currently conducts
its practice in the cities of Palmdale and Lancaster, in the form of such
Amended Leases set forth in Exhibit 5.1 attached hereto.
5.2 GUARANTY OF NOTES. Purchaser agrees to cause Prospect Medical
Holdings, Inc. to execute and deliver a guaranty of payment of the Notes at the
Closing in the form of Exhibit 5.2 hereto.
5.3 AUDIT COSTS. The cost of the audit related to the Company Financial
Statements as described in Section 3.5 shall be borne exclusively by Purchaser.
5.4 SIERRA MEDICAL GROUP PARTNERSHIP INTERESTS. Prior to the Closing, the
interests of the Sellers and Xxxx Xxxx, M.D., in the Partnership will be
acquired by the Company pursuant to assignments of Partnership interests and
related documents, collectively in the form of Exhibit 5.4 attached hereto.
Sellers shall use their best efforts to cause each employee of the Partnership
to assign such employee's employment agreement with the Partnership to the
Company, effective as of the Closing.
5.5 SELLERS' ACCESS TO COMPANY RECORDS. Following the Closing, Sellers
shall be granted access during business hours to Company's books and records to
the extent necessary to prepare Sellers' tax returns.
5.6 EXECUTION OF ASSIGNABLE OPTION AGREEMENT. Immediately following the
Closing, Company and Sierra Medical Management, Inc. shall enter into that
Assignable Option Agreement in the form of that attached hereto as Exhibit 5.6.
5.7 MERGER. The parties agree to use their best efforts to cause,
concurrent with the Closing, the Merger of Sierra Medical Management, Inc. with
and into Prospect Acquisition Corporation, Inc.
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5.8 TERMINATION OF CROSS PURCHASE AGREEMENT. Prior to, or concurrent
with, the Closing, Sellers shall terminate that certain Cross Purchase Agreement
between the shareholders of Sierra Primary Care Associates d/b/a Sierra Medical
Group, dated as of July 15, 1992.
5.9 COMPANY'S EMPLOYEES; PRIOR SERVICE CREDIT. Following the Closing,
Purchaser shall, to the extent possible, provide Company's employees with prior
service credit for any Benefit Plans maintained by Purchaser or Prospect Medical
Holdings in which such employees would otherwise be entitled to participate.
6. PURCHASERS' ACCESS TO RECORDS; CONFIDENTIAL INFORMATION; PUBLICITY:
6.1 ACCESS TO RECORDS. Between the date of the execution hereof and the
Closing, Purchaser, its appraisers, accountants, consultants, counsel and other
representatives, shall have access during or after normal business hours, upon
reasonable notice, to the tax returns, books, records, licenses, certifications,
contracts, agreements and all other relevant documentation of Company. Neither
Purchaser nor its representatives shall disclose the contents of any of said
materials that Purchaser has discovered in the course of its due diligence ("Due
Diligence") to any third party without prior written consent of Company, except:
(a) as required by law, including, but not limited to, civil litigation arising
out of this Stock Purchase Agreement or the transactions contemplated hereunder;
(b) to the extent covered by the Memorandum of Intent by and between Purchaser
and Sellers, but only with respect to information contained in any such
materials that were delivered by Company or Sellers and in Purchaser's
possession prior to the date hereof; and (c) information contained in any such
materials that is or becomes generally available to the public other than as a
result of a disclosure by Purchaser or its agents or employees in violation of
this Section through a third party's breach of its agreement with Company or
Sellers to maintain the confidentiality of such materials (collectively, the
"Exceptions").
6.2 CONFIDENTIAL INFORMATION. Each of the parties hereto agrees that at
all times prior to or following the Closing Date it shall not use for its or
their benefit or for any third party's benefit, any confidential information or
trade secrets of any other party or any "Affiliate" (as defined below), or of
any successor or assignee of such party or any Affiliate, and shall not disclose
or cause to be disclosed to any third party any confidential information or
trade secrets of any other party, any Affiliate, or any of their respective
successors or assigns at any time prior to or after the Closing Date. The
parties shall maintain and keep confidential the terms of this Stock Purchase
Agreement and the negotiations preceding this Stock Purchase Agreement, except
as may be required by applicable law. As used herein, "Affiliate" shall mean
any affiliated or related organization of a party to this Agreement.
6.3 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 Stock Purchase 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),
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without the prior written consent of Purchaser (in the case of Sellers) or
Sellers (in the case of Purchaser), except in accordance with any of the
Exceptions as set forth in Section 6.1, and except as reasonably required of
Purchaser by any applicable federal or state securities law (or agency's)
disclosure requirements. In the case of any written publicity or statement,
the applicable party with the above right of consent shall have the right to
approve in advance the specific language of any such writing, provided that
such approval may not be unreasonably withheld in the event of occurrence of
any of the Exceptions.
7. CLOSING; CONDITIONS TO OBLIGATIONS TO CLOSE:
7.1 CLOSING. The transactions contemplated by this Stock Purchase
Agreement shall be consummated at the "Closing." The Closing shall take place
at Xxxxxx & Xxxxxxx, 0000 Xxxxxxx Xxxx Xxxx, Xxxxxxx Xxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx 00000, or at such other place as may be designated by Sellers and
Purchaser, on or before September 19, 1997 ("Closing Date"), or at such other
time as is mutually agreed upon by the parties.
7.2 DELIVERIES BY SELLERS. At the Closing, Sellers shall execute (as to
documents calling for execution) and deliver to Purchaser the following:
(a) Stock certificates representing all of the issued and outstanding
shares of the Company, duly executed for transfer to Purchaser;
(b) A UCC search report dated not more than five (5) days before the
Closing Date issued by the California Secretary of State which shows that there
are no filings under the Uniform Commercial Code on file with such Secretary of
State which name Company or Sellers as a debtor or otherwise indicating any lien
on the Stock or on the assets of the Company, other than those filings
specifically approved by Purchaser in writing.
(c) A good standing certificate dated not more than two (2) days
before the Closing issued by the California Secretary of State which shows
Company is in good standing with such agency.
(d) An officer's certificate signed by Company's president and its
secretary, and a certificate signed by Sellers, that all of Seller's
representations and warranties in this Stock Purchase Agreement are true,
correct and complete, and that all covenants and conditions specified in this
Stock Purchase Agreement to be fulfilled by Company have been fulfilled, and
that the Articles of Incorporation and the Bylaws of Company previously provided
to Purchaser are true and complete copies, as currently in effect, in the forms
attached hereto as Exhibit 7.2(d).
(e) Non-Competition Agreement of Sellers in the form set forth in
Exhibit 7.2(e) attached hereto.
(f) An Employment Agreement between Company and each of Sellers in
the form of Exhibits 7.2(f)(i) and 7.2(f)(ii) attached hereto.
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(g) True and complete minute books and the stock register of the
Company.
(h) True and complete copies of all contracts described in Section
3.13.
(i) A true and complete copy of each insurance policy listed in
Exhibit 3.15(b) hereto.
(j) An opinion of counsel for Sellers, dated as of the Closing Date
("Sellers Opinion") in the form of Exhibit 7.2(j).
(k) An officers certificate setting forth a copy of the resolutions
adopted by Company's Board of Directors evidencing the intent to terminate all
Benefit Plans (as defined in Section 3.20) as of the Closing.
(l) An officers certificate setting forth a copy of the resolutions
adopted by Company's Board of Directors authorizing the terms of this Stock
Purchase Agreement, the transactions contemplated herein and the Closing and
certifying as to the authority of the officers executing this Stock Purchase
Agreement and any documents to be delivered by Purchaser at the Closing.
(m) Amendments to Company's Articles of Incorporation and Bylaws
allowing for the ownership of the Company's stock by a professional corporation.
(n) Executed copies of the Amended Leases.
(o) The audited Company Financial Statements.
(p) Such other customary instruments, documents and certificates in
forms reasonably satisfactory to Purchaser and Sellers as shall be necessary to
carry out the intent and effectuate the purposes of this Stock Purchase
Agreement and sufficient to vest in Purchaser good title to the Stock, free and
clear of all Liens.
7.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver to
Sellers the following:
(a) Payment of the cash portion of the Purchase Price in accordance
with Section 2.3 herein and delivery of the Notes in the form of Exhibit 2.3(a).
(b) The Employment Agreements between Purchaser and Sellers the form
of such agreements as set forth in Exhibits 7.2(f)(i) and 7.2(f)(ii) attached
hereto.
(c) An officer's certificate setting forth a copy of the resolutions
adopted by the Board of Directors of Purchaser authorizing and approving the
execution and delivery of this Stock Purchase Agreement by Purchasers, the
transactions contemplated herein and the Closing and
20
certifying as to the authority of the officers executing this Stock Purchase
Agreement and any documents to be delivered by Purchaser at the Closing.
(d) The Guaranty of Prospect Medical Holdings guarantying payment of
the Notes.
(e) All other instruments and documents as Sellers may reasonably
request as necessary to carry out the intent and effectuate the purposes of this
Stock Purchase Agreement.
(f) Executed copies of the Amended Leases.
(g) Written evidence provided to Purchaser that the Company's
officers and directors have resigned, and evidence that Xxxxx X. Xxxxxx M.D. and
Xxxxx XxXxxxxx, M.D. have been named as directors and officers of Company.
(h) Payment of $250,000 to Xx. Xxxx on behalf of Company.
7.4 CONDITIONS TO PURCHASER'S OBLIGATIONS. Purchaser's obligation to
consummate the transactions contemplated by this Stock Purchase Agreement is
conditioned upon satisfaction, or waiver by Purchaser in writing, of all of the
following on or before the Closing Date:
(a) The performance by Company and Sellers of all of their respective
promises and agreements under this Stock Purchase Agreement that are to be
performed as of the Closing, including but not limited to the procurement and
delivery to Purchaser of all assignments and consents referred to in Schedule
3.3.
(b) No suit, action, arbitration or legal, administrative or other
proceeding or governmental investigation shall be pending or threatened against
Purchaser, Company or Sellers seeking to restrain or enjoin the Closing, or
attempting to impose a material obligation liability on Company or Sellers, in
relation to or affecting the consummation of the transactions contemplated by
this Stock Purchase Agreement, and no decree, executive or judicial order shall
have been instituted or threatened by any governmental or regulatory authority
which challenges the validity or enforceability of this Agreement or any of its
terms, or which would have a materially adverse effect on the Company.
(c) Each of the representations and warranties of Company and
Sellers are true and correct in all material respects as of the Closing.
(d) The assets of Company have not suffered any material loss or
damage which is not substantially insured. Sellers shall have maintained
Company in the regular course of business and Company shall have paid all of its
accounts payable as they came due, and there have been no material adverse
changes in the Practice from the date of this Agreement or of the Company
Financial Statements, whichever is later.
(e) Purchaser has not exercised the cancellation option under Section
9 below.
21
(f) At the Closing, the Stock shall not be subject to any Lien.
(g) Company and Sellers shall have given all notices to any third
parties, if any, made all filings, and obtained all required authorizations,
consents and approval of all health plans, and all governmental agencies in
connection with the matters described herein.
(h) Sellers shall have received and delivered to Purchaser the
Company Financial Statements.
(i) Purchaser shall have received a certificate of the Secretary or
other officer of the Company certifying as true and correct as of the Closing
Date, a copy of the Resolutions of the Board of Directors which authorize the
execution and full performance of the transaction documents and the incumbency
of their respective officers.
(j) Evidence that the certificate of merger being filed in connection
with the merger of Prospect Acquisition Corporation, Inc. and Sierra Medical
Management, Inc., a Delaware corporation, has been filed, or will be filed
concurrently with the Closing, with the Delaware Secretary of State.
7.5 CONDITIONS TO SELLER'S OBLIGATION. Seller's obligation to consummate
the transactions contemplated by this Stock Purchase Agreement is conditioned
upon satisfaction, or waiver by Company in writing, of all of the following on
or before the Closing Date:
(a) The performance by Purchaser of all of Purchaser's promises and
agreements under this Stock Purchase Agreement that are to be performed as of
Closing.
(b) No suit, action, arbitration or legal, administrative or other
proceeding or governmental investigation shall be pending or threatened against
Purchaser, Company or Sellers in relation to or affecting the consummation of
the transactions contemplated by this Stock Purchase Agreement.
(c) Purchaser's execution and delivery of Employment Agreements with
Sellers, as set forth on Exhibits 7.2(f)(i) and 7.2(f)(ii) attached hereto;
(d) Each of the representations and warranties of Purchaser is true
and correct in all material respects as of the Closing.
(e) Sellers and the Company shall have received a certificate of the
Secretary or other officer of the Purchaser certifying as true and correct the
Closing Date, a copy of the Resolutions of the Board of Directors which
authorize the execution and full performance of the transaction documents and
the incumbency of their respective officers.
(f) Evidence that the certificate of merger being filed in connection
with the merger of Prospect Acquisition Corporation, Inc. and Sierra Medical
Management, Inc., a Delaware
22
corporation, has been filed, or will be filed concurrently with the Closing,
with the Delaware Secretary of State.
(g) Purchaser shall have caused Prospect Medical Holdings to issue
the Options to Sellers.
8. INDEMNIFICATION:
8.1 SELLER'S INDEMNITY. Sellers shall indemnify, defend and hold
Purchaser, its 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 and expenses and court costs), whether known or
unknown, whether suit is instituted or not, and, if instituted, whether at any
trial and appellate level, exceeding $100,000 in the aggregate, that arise out
of, relate to or result from any default or breach by Company or Sellers of any
representation, warranty, covenant or any other material term or condition in
this Stock Purchase Agreement, including the exhibits and schedules hereto.
Without limiting the generality of the foregoing, except as provided in Section
8.5 herein, with respect to the measurement of damages, the Purchaser shall have
the right to be put in the same financial position as it would have been in had
the representations, warranties and covenants of Sellers been true and correct,
had each of the covenants of Company and Sellers been performed in full, and had
Company and Sellers paid, discharged and performed all of the liabilities and
obligations of the Sellers.
8.2 PURCHASER'S INDEMNITY. Purchaser shall indemnify, defend and hold
Sellers harmless from and against any and all liabilities, losses, damages,
claims, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses and court costs), whether known or
unknown, whether suit is instituted or not, and, if instituted, whether at any
trial and appellate level, exceeding $100,000 in the aggregate, that arise out
of or relate to (a) any default or breach by Purchaser of any representation,
warranty, covenant or any other material term or condition in this Stock
Purchase Agreement, including the exhibits and schedules hereto, or (b) the
conduct of Company's business after the date of the Closing, including, without
limitation, any litigation hereafter arising from such conduct occurring after
the Closing Date.
8.3 INDEMNIFICATION PROCEDURE.
(a) THIRD PARTY CLAIMS.
(i) In the event any person or entity not a party to this
Agreement shall make a demand or claim or file or threaten to file or continue
any lawsuit, which demand, claim or lawsuit may result in liability to an
indemnified party under this Agreement, or in the event that a potential loss,
damage or expense comes to the attention of any party, then the party receiving
notice or aware of such event shall promptly notify the other party or parties
of the claim. Within ten (10) days after notice by such third party or by the
indemnified party (the "Notice") to an indemnifying party of such demand, claim
or lawsuit, the indemnifying party must, at its cost and expense, retain counsel
for the indemnified party to defend any such demand, claim or lawsuit, provided
that counsel who will conduct the defense of such claim or litigation will be
approved by the indemnified party
23
whose approval will not unreasonably be withheld. In the event the parties
cannot agree on such counsel within 30 days of the date of the Notice, the
indemnified party may select its own counsel and provide for the payment of
such counsel and its expenses related thereto, during the pendency of such
demand, claim or lawsuit. In such cases, at the conclusion of such demand,
claim or lawsuit, the parties shall select an arbitrator in accordance with
the provisions set forth in Section 10.18 herein for the sole purpose of
determining the responsible party for payment of such fees.
(ii) The indemnified party shall have the right, at its own
expense, to participate in the defense of any suit, action or proceeding brought
against it with respect to which indemnification may be sought hereunder,
provided, that: (a) if the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them, (b) the employment
of counsel by such indemnified party has been authorized in writing by the
indemnifying party, or (c) the indemnifying party has not in fact employed
counsel to assume the defense of such action within a reasonable time; then, the
indemnified party shall have the right to retain its own counsel at the cost and
expense of the indemnifying party. No indemnifying party, in the defense of any
such claim or litigation, will consent to entry of any judgment or enter into
any settlement without the consent of the indemnified party. If any indemnified
party is advised by counsel chosen by it that there may be one or more legal
defenses available to such indemnified party that are different from or
additional to those available to and which have not been asserted by the
indemnifying party, the indemnifying party will not have, at the election of the
indemnified party, the right to continue the defense of such claim or action on
behalf of such indemnified party and will reimburse such indemnified party and
any person controlling such indemnified party for the reasonable fees and
expenses of any counsel retained by the indemnified party to undertake the
defense. In the event that the indemnifying party shall fail to respond within
ten (10) days after receipt of the Notice, the indemnified party may retain
counsel and conduct the defense of such demand, claim or lawsuit, as it may in
its sole discretion deem proper, at the sole cost and expense of the
indemnifying party. Except as explicitly provided in this Section 8.3, failure
to provide Notice shall not limit the rights of such party to indemnification.
(b) DIRECT BREACH OF AGREEMENT. In the event any party to this Stock
Purchase Agreement makes a direct demand or claim for indemnification against
the other party hereto for a breach or default of any representation, warranty,
covenant or other material term or conditions of this Stock Purchase Agreement,
the parties shall follow the arbitration procedure set forth in Section 10.18
herein.
8.4 PAYMENT; PURCHASER'S RIGHT TO OFFSET. All amounts paid by either
party pursuant to this Section 8.4 shall be on a dollar-for-dollar basis as to
claims for which indemnification is to be paid. With regard to claims of third
parties for which indemnification is payable hereunder, such indemnification
shall be paid by the indemnifying party in advance of settlement or final
adjudication thereof on a current basis within thirty (30) days of receipt from
the indemnified party of such supporting documentation as the indemnifying party
may reasonably request. Notwithstanding anything herein to the contrary, in the
event Purchaser seeks indemnification from Sellers related to claims or matters
that have already been adjudicated or settled with the mutual agreement of the
parties hereto, Purchaser shall have the right to offset any amounts due from
Sellers
24
under this Section 8.4 by reducing any other amounts due and payable by
Purchaser to Sellers under the Notes, unless payment is agreed through other
means. In the event Purchaser seeks indemnification from Sellers related to
claims or matters that have not been adjudicated or settled with the mutual
agreement of the parties hereto and Purchaser desires to reduce any other
amounts due and payable by Purchaser to Sellers under the Notes, Purchaser
shall notify Sellers of its intention to settle or pay such claim and offset
payments under the Notes; provided however, that in such circumstances
Purchaser shall only reduce payments to be made under the Notes after
Purchaser has paid an amount equal to the amount proposed to be paid in
settlement of such third party claim into a mutually agreed upon depository
account. The parties shall then follow the arbitration procedures set forth
in Section 10.18 herein to determine the party responsible for making such
payment.
8.5 LIMITATION OF INDEMNITIES. The aggregate liability of (i) Purchaser,
or (ii) Sellers together, shall not exceed Three Million Dollars
($3,000,000.00), including all costs, expenses and attorneys fees; provided
however, that Sellers' liability shall be joint and several. Notwithstanding
the foregoing, the Three Million Dollar ($3,000,000) limitation of Sellers'
liability shall not apply to civil or criminal fraud or tax matters, for which
Sellers' liability shall not exceed Three Million Dollars ($3,000,000)
individually, for an aggregate of Six Million Dollars ($6,000,000). Such
limitation of each party's liability shall include the aggregate amounts paid by
such party as indemnification pursuant to the terms of the Agreement and Plan of
Reorganization by and among Prospect Medical Holdings, Sierra Medical
Management, Inc., Sinnadurai X. Xxxxxxx, M.D., Karunyan Xxxxxxxxxxxx, M.D. and
Xxxxxxxxxx Xxxxxxxxx provided further, that any amounts paid by Prospect Medical
Holdings or any of its affiliates pursuant to such agreement shall count toward
the maximum owed by Purchaser herein.
9. PURCHASER'S CANCELLATION OF STOCK PURCHASE AGREEMENT:
9.1 JEOPARDY. In the event the performance by Sellers of any term,
covenant, condition or provision of this Agreement should be in violation of any
statute, ordinance, or be otherwise deemed illegal, by a state or federal court
or governmental agency (collectively, "Jeopardy Event"), then the parties shall
use their best efforts to meet forthwith and attempt to negotiate an amendment
to this Stock Purchase Agreement to remove or negate the effect of the Jeopardy
Event. In the event the parties are unable to negotiate such an amendment
within thirty (30) days following written notice by either party of the Jeopardy
Event, then Purchaser may cancel this Agreement immediately upon written notice
("Cancellation Option").
9.2 EXERCISE OF CANCELLATION OPTION. In the event Purchaser exercises the
Cancellation Option described above, it shall so notify Company 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 6.2 above shall
survive Purchaser's exercise of said Cancellation Option.
25
10. MISCELLANEOUS
10.1 RISK OF LOSS. Until the Closing, Sellers shall bear all risk of loss,
damage or destruction to the assets of the Company and Stock which does not
result from a breach by Purchaser of its representations, warranties or
covenants herein set forth.
10.2 NO THIRD PARTY BENEFICIARIES. The parties intend that the benefits of
this Stock Purchase Agreement shall inure only to Purchaser, Company and the
Sellers except as expressly so stated herein. Notwithstanding anything
contained herein, or any conduct or course of conduct by any party hereto,
before or after signing this Stock Purchase Agreement, this Stock Purchase
Agreement shall not be construed as creating any right, claim or cause of action
against Purchaser, Company or Sellers by any other person or entity.
10.3 ENTIRE AGREEMENT. This Stock Purchase Agreement, together with all
exhibits and schedules hereto, and all documents referred to herein (including
without limitation any ancillary agreements), constitutes 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 Stock Purchase Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by the other party(ies), or by anyone acting
on behalf of any party, that are not embodied herein, and that no other
agreement, statement, or promise not contained in this Stock Purchase Agreement
shall be valid or binding.
10.4 SUCCESSORS AND ASSIGNS. This Stock Purchase Agreement 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 Stock Purchase Agreement or the rights,
interests or obligations hereunder; provided, however, that to the extent
permitted by applicable law Purchaser, after the Closing may, (i) assign any or
all of its rights and interests hereunder to Imperial Bank or its nominees or 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 Purchaser
shall remain liable and responsible for the performance of all of its
obligations hereunder). Any assignment or delegation in contravention of this
Section 10.4 shall be null and void.
10.5 COUNTERPARTS. This Stock Purchase Agreement, and any amendments
thereto, may be executed in counterparts, each of which shall constitute an
original document, but which together shall constitute one and the same
instrument.
10.6 HEADINGS. The section headings contained in this Stock Purchase
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Stock Purchase Agreement.
10.7 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 or upon delivery by facsimile or e-mail; twenty-four (24)
hours following deposit with a courier for overnight delivery;
26
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 Sellers: Sinnadurai X. Xxxxxxx, M.D.
00000 00xx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Karunyan Xxxxxxxxxxxx, M.D.
0000 Xxxxxxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
The Xxxxxxxxxxxx Charitable Remainder Trust
c/o Karunyan Xxxxxxxxxxxx, M.D.
0000 Xxxxxxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
with copy to: Xxxx Xxxxxxx, Esq.
Xxxxx & Xxxxxx
000 X. Xxxxxx Xx., Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
If to Purchaser: Xxxxx X. Xxxxxx, M.D.
Prospect Medical Group, Inc.
00000 Xxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
with copy to: Xxxx X. Xxxxxx, Esq.
Xxxxxx & Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx, 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
10.8 GOVERNING LAW. This Stock Purchase Agreement shall be governed by and
construed in accordance with the laws of the State of California.
10.9 AMENDMENT. This Stock Purchase 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.
10.10 SPECIFIC PERFORMANCE. Sellers acknowledge, and agree with
Purchaser that, in the event either Seller terminates this Stock Purchase
Agreement or otherwise fails to close, Purchaser would be irreparably damaged
thereby and that monetary damages would not provide an adequate remedy.
Accordingly, it is agreed that, in addition to any other remedies that Purchaser
may have at law or in equity, Purchaser shall be entitled to specific
performance and injunctive relief to prevent
27
such a breach and specifically to enforce the terms and provisions hereof in
any action instituted in a court of competent jurisdiction.
10.11 SEVERABILITY. If any provision of this Stock Purchase 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 Stock Purchase Agreement.
10.12 FEES AND EXPENSES. Except for accountant's fees directly related
to the audit of the Company, which fees the parties agree are to be paid by
Purchaser, or as otherwise explicitly set forth otherwise in writing signed by
the parties, Sellers and Purchaser agrees to bear their own expenses including,
without limitation, attorneys' fees in connection with the preparation of this
Stock Purchase Agreement and the transactions contemplated hereby. Sellers
further agree that all legal fees exceeding $30,000 incurred in connection with
this Stock Purchase Agreement and the transactions contemplated hereby shall be
the responsibility of Sellers and not Company.
10.13 EXHIBITS AND SCHEDULES. All exhibits and schedules attached to
this Stock Purchase Agreement are incorporated herein by this reference and all
references herein to "Stock Purchase Agreement" shall mean this Stock Purchase
Agreement together with all such exhibits and schedules, and all ancillary
agreements to be delivered at Closing.
10.14 SURVIVAL OF INDEMNIFICATION, REPRESENTATIONS AND WARRANTIES.
Except as expressly stated to the contrary herein, the indemnifications,
representations and warranties of the parties contained in this Stock Purchase
Agreement or in any certificate or document delivered pursuant to the provisions
hereof shall survive the Closing Date for a period of three (3) years and shall
not be affected by any investigation made by or on behalf of Purchaser, Company
or Sellers.
10.15 TIME OF ESSENCE. Time is expressly made of the essence of this
Stock Purchase Agreement and each and every provision hereof of which time of
performance is a factor.
10.16 WAIVERS. No waiver by any party, whether express or implied, of
its rights under any provision of this Agreement shall constitute a waiver of
the party's rights under such provisions at any other time or a waiver of the
party's rights under any other provision of this Stock Purchase Agreement. No
failure by any party to take any action against any breach of this Stock
Purchase Agreement or default by another party shall constitute a waiver of the
former party's right to enforce any provision of this Stock Purchase Agreement
or to take action against such breach or default or any subsequent breach or
default by the other party. To be effective any waiver must be in writing and
signed by the waiving party.
10.17 ATTORNEYS' FEES. Subject to the rights and obligations of the
parties set forth in Article 8, should any party institute any action or
procedure to enforce this Stock Purchase Agreement or any provision hereof, or
for damages by reason of any alleged breach of this Stock Purchase Agreement or
of any provision hereof, or for a declaration of rights hereunder (including
without limitation arbitration), the prevailing party in any such action or
proceeding shall be entitled
28
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.
10.18 ARBITRATION. The parties firmly desire to resolve all disputes
arising hereunder without resort to litigation in order to protect their
respective business reputations and the confidential nature of certain aspects
of their relationship. Accordingly, any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration as set forth below.
(a) All disputes which in any manner arise out of or relate to this
Agreement or the subject matter thereof, shall be resolved exclusively by
arbitration in accordance with the provisions of this Section 10.18. Either
party may commence arbitration by sending a written demand for arbitration to
the other party, setting forth the nature of the controversy, the dollar amount
involved, if any, and the remedies sought, and attaching a copy of this Section
to the demand.
(b) The parties stipulate to arbitration before a single, mutually
agreed upon arbitrator sitting on the Los Angeles, California Judicial
Arbitration Mediation Services (JAMS) panel. In the event that the parties are
unable to agree upon the person chosen as arbitrator within 30 days of the
demand for arbitration, the arbitrator shall be selected in the sole discretion
of the JAMS administrator. The arbitrator shall be a member of the California
bar.
(c) The parties shall share all costs of arbitration. The prevailing
party shall be entitled to reimbursement by the other party of such party's
attorneys' 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. All proceedings in arbitration shall be in accordance with
the California Code of Civil Procedure, as amended, and the parties shall have
the right to legal discovery in any matter submitted to arbitration in
satisfaction of California Code of Civil Procedure Section 1283.05, as permitted
by California Code of Civil Procedure Section 1283.1(b).
(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 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.
(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,
29
preliminary injunction, or other similar equitable relief.
(h) The decision and award of the arbitrator shall be kept
confidential by the parties to the greatest extent possible. No disclosure of
such decision or award shall be made by the parties except as required by law or
as necessary or appropriate to effect the enforcement thereof.
(i) Should either party institute any action or procedure to enforce
this Agreement or any provision hereof, 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 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.
10.19 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Stock Purchase Agreement and in the event of
any ambiguity or question of intent or interpretation, no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Stock Purchase Agreement.
10.20 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 Stock Purchase
Agreement and the intentions of the parties hereto.
30
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as of the date first written above.
"PURCHASER"
PROSPECT MEDICAL GROUP, INC.,
a California professional corporation
By: /s/ XXXXX X. XXXXXX M.D.
------------------------------------
Its: VP
------------------------------------
"COMPANY"
SIERRA PRIMARY CARE MEDICAL GROUP, INC.
a California professional corporation
By: /s/ KARUNYAN XXXXXXXXXXXX
------------------------------------
Karunyan Xxxxxxxxxxxx, President
---------------------
"SELLERS"
By: /s/ SINNADURAI X. XXXXXXX
------------------------------------
Sinnadurai X. Xxxxxxx, M.D.
By: /s/ KARUNYAN XXXXXXXXXXXX
------------------------------------
Karunyan Xxxxxxxxxxxx, M.D.
THE XXXXXXXXXXXX CHARITABLE
REMAINDER TRUST
By: /s/ KARUNYAN XXXXXXXXXXXX
------------------------------------
Karunyan Xxxxxxxxxxxx, M.D. Trustee
31
SPOUSAL JOINDER AND CONSENT
I am the spouse of Sinnadurai X. Xxxxxxx, M.D., Seller. To the extent that I
have any interest in any of the Stock (as that term is defined in the Stock
Purchase Agreement), I hereby join in the Stock Purchase Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Purchase Agreement, understand its terms and conditions, and to
the extent that I have felt it necessary, I have retained independent legal
counsel to advise me concerning the legal effect of this Stock Purchase
Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that Purchaser is significantly relying on the
validity and accuracy of this Spousal Joinder and Consent in entering into this
Stock Purchase Agreement.
Executed this 23rd day of September, 1997
---- ---------
Signature: /s/ X.X. XXXXXXX
----------------
Printed or Typed Name: XXXXXXX XXXXXXX XXXXXXX
-----------------------
32
SPOUSAL JOINDER AND CONSENT
I am the spouse of Karunyan Xxxxxxxxxxxx, M.D., Seller. To the extent that I
have any interest in any of the Stock (as that term is defined in the Stock
Purchase Agreement), I hereby join in the Stock Purchase Agreement and agree to
be bound by its terms and conditions to the same extent as my spouse. I have
read the Stock Purchase Agreement, understand its terms and conditions, and to
the extent that I have felt it necessary, I have retained independent legal
counsel to advise me concerning the legal effect of this Stock Purchase
Agreement and this Spousal Joinder and Consent.
I understand and acknowledge that Purchaser is significantly relying on the
validity and accuracy of this Spousal Joinder and Consent in entering into this
Stock Purchase Agreement.
Executed this 23rd day of September, 1997
---- ---------
Signature: /s/ INPAMANI X. XXXXXXXXXXXX
------------------------------------
Printed or Typed Name: INPAMANI X. XXXXXXXXXXXX
------------------------
33
EXHIBITS TO
AGREEMENT FOR
THE PURCHASE AND SALE OF STOCK
OF
SIERRA PRIMARY CARE MEDICAL GROUP, INC.
2.1(a) Option -- Sinnadurai X. Xxxxxxx, M.D. -- filed herewith as
Exhibit 10.36
2.1(b) Option -- Karunyan Xxxxxxxxxxxx, M.D. -- filed herewith as
Exhibit 10.37
2.3(a)(i) Contingent Promissory Note -- Sinnadurai X. Xxxxxxx, M.D. -- filed
herewith as Exhibit 10.35
2.3(a)(ii) Contingent Promissory Note -- Karunyan Arulananthm, M.D. -- filed
herewith as Exhibit 10.34
3.2 Restrictions on Transfers
3.3 Consents
3.4 Default
3.5 Financial Statements
3.8(a)(ii) Material Changes
3.8(b)(ii) Compensation
3.10 Liens
3.11 Personal Property
3.13 Contracts
3.13(e) Company Leases
3.14 Powers of Attorney
3.15(a) Litigation
3.15(b) Insurance Policies of Company
3.20 Employees
3.21 Employee Entitlement Programs
3.23 Governmental Inspections of Company
3.24 Environmental Conditions
3.26 Bank and Financial Accounts and Investments
3.27 Subsidiaries and Affiliates
3.29 Intellectual Property
4.10(a) Litigation of Purchaser
4.10(b) Insurance of Purchaser
4.13 Governmental Inspections of Purchaser
5,1 Amended Leases
5.2 Guaranty of Payment of Notes -- filed herewith as Exhibits 10.40 and
10.41
5.5 Form of Amended and Restated Management Services Agreement -- filed
herewith as Exhibit 10.39
5.6 Form of Assignable Option Agreement -- filed herewith as Exhibit 10.33
7.2(d) Form of Officers' Certificate and Form of Sellers' Certificates
7.2(e) Form of Non-Competition Agreement -- filed herewith as Exhibits
10.44 and 10.45
34
7.2(f)(i) Form of Sellers' Employment Agreement -- Sinnadurai X. Xxxxxxx,
M.D. -- filed herewith as Exhibit 10.43
7.2(f)(ii) Form of Sellers' Employment Agreement -- Karunyan Xxxxxxxxxxxx,
M.D. -- filed herewith as Exhibit 10.42
7.2(j) Form of Opinion of Sellers' Counsel
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.
35
