INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT ("Agreement") is made and entered into as of
July 31, 1996, by and between MED-SEARCH, INC., a Delaware corporation
("Corporation") and XXXXX X. XXXXXX, M.D. and his assigns and designees
("Terner").
RECITALS
WHEREAS, the Corporation is a provider of medical practice management and
administrative services which is currently operating in a severely distressed
financial condition; and
WHEREAS, the Corporation has previously engaged in discussions with Terner
regarding the merger of the Corporation with another, more financially viable
provider of managed care services and the raising of capital for such ventures;
and
WHEREAS, the Corporation and Terner have entered into a binding memorandum
of intent dated as of October 13, 1995, which provides for the merger of a
wholly owned subsidiary of the Corporation with a management services
organization in a tax-free, stock for stock exchange; and
WHEREAS, pursuant to that certain Agreement and Plan of Reorganization, a
copy of which is attached hereto as Exhibit A (the "Merger Agreement"), the
Corporation proposes to merge Med-Search Acquisition Corporation, with and into
Prospect Medical Systems, Inc., a Delaware corporation (the "Merger"); and
WHEREAS, the Merger will result in part in Terner becoming Chairman of the
Board and Chief Executive Officer of the Corporation; and
WHEREAS, the Corporation requires the infusion of a substantial amount of
new capital in order to address its current severely distressed financial
condition; and
WHEREAS, the infusion of such capital, in the amount of $2,500,000, is also
a condition of the Merger; and
WHEREAS, Terner has been advancing funds to the Corporation to permit it to
continue its operations prior to the Merger and to assist it in obtaining
settlements with its creditors and other claimants; and
WHEREAS, the Corporation and Terner have agreed to raise an aggregate of
$2,500,000 through the issuance of the common stock ("Stock") of the
Corporation, at the price and upon the other terms and conditions set forth in
the Preliminary Confidential Private Offering Memorandum, attached hereto as
Exhibit B, and any subsequent amendments or supplements thereto (collectively,
the "Offering Memorandum") and in this Agreement (the "Offering"); and
WHEREAS, the Offering Memorandum describes the business of the Corporation
and has been prepared using information provided by the Corporation.
NOW, THEREFORE, in consideration of the recitals set forth above and the
covenants and conditions set forth below, the Corporation and Terner hereby
agree as follows:
1. AGREEMENT. On the basis of the representations and warranties
of the Corporation contained herein, and subject to the terms and conditions
set forth herein, Terner agrees to arrange for a $2,500,000 equity investment
in the Corporation, during the period commencing on the date hereof and
terminating on the Expiration Date, as defined in the Offering Memorandum, at
the price and upon the other terms and conditions set forth in the Offering
Memorandum and in the attachments thereto. Terner shall have no obligation
to continue or to complete his performance under this Agreement if any of the
representations, warranties or covenants of the Corporation contained in this
Agreement or in the Merger Agreement are not accurate and complete as of the
closing of the Merger. Until the closing of the Merger, the Corporation shall
have no claim to any proceeds of, or any rights based upon, commitments
obtained by, or funds delivered to, Terner prior to such closing.
Immediately following such closing, Terner shall be required to deliver to
the Corporation investor commitments, and payment for the shares of stock of
the Corporation represented thereby, in the total amount of $2,500,000,
consisting of cash and/or receipts for Reimbursable Expenses as defined in
Section 2 below.
2. REIMBURSEMENT. The Corporation shall reimburse Terner, his assigns
and/or designees for the reasonable costs and expenses ("Reimbursable Expenses")
he (they) has (have) incurred or advanced, or will incur or advance on behalf of
the Corporation, or otherwise, in connection with his performance of his
obligations pursuant to this Agreement, including, but not limited to, legal,
accounting, appraisal and other fees of professionals, and travel and other
fees, costs and expenses associated with: (i) this Offering and/or the Merger,
including, but not limited to, fees, costs and expenses associated with
obtaining audits of the Corporation, Prospect Medical Systems, Inc., Prospect
Medical Group, Inc., and Suncrest Medical Group, Inc, and fees, costs and
expenses associated with the Fairness Opinion with respect to the Merger being
sought from The Mentor Group, and any amounts payable by Terner to Xxxxxxx Xxxxx
and the Noble 1992 Family Trust (the "Trust") pursuant to Section 2.1 of that
certain Agreement, made and entered into as of even date herewith, by and among
Terner, Xxxxxxx Xxxxx, both individually and as representative of Xxxxxx X.
Xxxxx, M.D., and the Trust and (ii) any letter of intent relating to the
formation or acquisition of other medical groups or independent practice
associations and the preceding and subsequent negotiations with such entities,
including, but not limited to, the Letter
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of Intent with San Antonio Network of Physicians, P.A., and the Letter of
Intent with Ventu IPA. The Corporation shall reimburse Terner for such
expenses irrespective of whether the Merger closes. To receive reimbursement
of Reimbursable Expenses, Terner shall submit invoices therefor or other
reasonable evidence thereof accompanied by a Certificate in the form of
Exhibit D, attached hereto, certifying that such Reimbursable Expenses have
been incurred or advanced by Terner, his assigns and/or designees.
3. INVESTMENTS AND PAYMENT FOR STOCK.
(a) DELIVERY OF DOCUMENTS. Each person desiring to purchase Stock
through Terner will be required to execute and to deliver to Terner such
documents as Terner shall deem necessary or advisable, in conformance with the
Offering Memorandum, together with a check or other instrument satisfactory to
Terner, in the amount calculated pursuant to the Offering Memorandum and the
attachments thereto.
(b) PAYMENT FOR STOCK. The shares of stock of the Corporation to be
issued pursuant to the Offering shall be sold for the price set forth in the
Offering Memorandum. Payment for such shares of stock may be made in cash or,
at Terner's option, by cancellation of all or any portion of the Reimbursable
Expenses.
4. COVENANTS OF THE CORPORATION. The Corporation covenants and agrees as
follows:
(a) SECURITIES LAW QUALIFICATIONS. The Corporation will cooperate
with Terner and will use its best efforts to qualify the Stock for offering and
sale under the Securities Act of 1933, as amended (the "Act"), and Rule 4(2)
and/or Regulation D thereunder, and under the securities or Blue Sky laws of
California, New York or such jurisdictions as Terner may request, and to make
such applications, file such documents, and furnish such information as may
reasonably be required for such purposes.
(b) AMENDMENTS. If at any time before the Expiration Date, any event
occurs as a result of which the Offering Memorandum, as then amended or
supplemented, would include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not misleading,
or if it is necessary at any time to amend the Offering Memorandum to comply
with the Act, or with any Blue Sky law, the Corporation shall promptly notify
Terner thereof and provide Terner with such information as may be required to
prepare an amendment.
5. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation
hereby represents and warrants that:
(a) COMPLIANCE WITH SECURITIES ACT. Any Preliminary Offering
Memorandum prepared for distribution to prospective investors will comply as to
form in all material respects with the requirements of the Act and the rules and
regulations thereunder, and will not include any
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untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make statements therein, in the
light of the circumstances under which they are made, not misleading; when
the final Offering Memorandum is distributed and at all times subsequent
thereto up to and including the Expiration Date: (i) the Offering Memorandum
and any amendment or supplements thereto will contain all statements which
are required to be stated therein by the Act and the rules and regulations
thereunder and will comply in all material respects with the Act and the
rules and regulations thereunder, and (ii) neither the Offering Memorandum
nor any amendment or supplement thereto will at any such time include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(b) NO SUBSEQUENT MATERIAL EVENTS. Subsequent to the respective
dates of which information is given in the Offering Memorandum and prior to the
Expiration Date, except as contemplated in the Offering Memorandum, the
Corporation has not incurred and will not have incurred any material liabilities
or obligations, direct or contingent, or entered into any material transactions
not in the ordinary course of business, and there has not been and will not have
been any material adverse change in the financial position or results of
operation of the Corporation.
(c) CORPORATION STATUS. The Corporation is a Delaware corporation
and has full power and authority to conduct its business and to enter into this
Agreement.
(d) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Corporation and constitutes a valid
and binding agreement of the Corporation enforceable in accordance with its
terms; the performance of this Agreement and the consummation of the
transactions contemplated herein and the fulfillment of the terms hereof will
not result in a breach of any of the terms and provisions of, or constitute a
default under, any statute, indenture, mortgage, deed of trust, note, agreement,
lease or other agreement or instrument to which the Corporation is a party or by
which it or any of its property is bound, or under any rule or regulation or
order of any court or other governmental agency or body applicable to the
Corporation; and no consent, approval, authorization or order of any court or
governmental agency or body has been or is required for the performance of this
Agreement by the Corporation, or for the consummation of the transactions
contemplated hereby and thereby, respectively (except such as have been obtained
under the Act, or as may be required under state securities or Blue Sky laws in
connection with the distribution of the Stock).
(e) MERGER AGREEMENT. All of the representations, covenants and
warranties of the Corporation contained in the Merger Agreement shall be
accurate and complete as of the closing of the Merger; and all of the
obligations of the Corporation required to be fulfilled as of the closing of the
Merger shall have been fulfilled.
(f) OFFICER'S CERTIFICATE. At the closing of the Merger, the
Corporation shall deliver to Terner an officer's certificate, in the form of
Exhibit C attached hereto, signed by the Corporation's president or vice
president, its chief financial officer, and its secretary, certifying
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that as of the date of such closing, all of the representations and
warranties of the Corporation are true on and as of such date of closing and
that all conditions specified in this Agreement to be fulfilled by the
Corporation have been fulfilled.
6. COVENANTS OF TERNER. Terner covenants and agrees with the Corporation
as follows:
(a) QUALIFICATIONS OF INVESTORS. Terner will use best efforts to
independently determine that each person who desires to invest in the
Corporation meets the investor suitability requirements set forth in the
Offering Memorandum, including without limitation that each investor is an
"accredited" investor. Such efforts shall include an independent verification,
by any reasonable means utilized in the ordinary course of business, of the
income and net worth of each person whose investment commitment is obtained by
Terner. In recommending to a prospective investor the purchase of Stock, Terner
will:
(1) have reasonable grounds to believe, on the basis of
information obtained from the prospective investor concerning his investment
objectives, other investments, financial situation and needs, and any other
information known by Terner, that:
(i) the prospective investor is or will be in a financial
position appropriate to enable him to realize to a significant extent any
benefits described in the Offering Memorandum;
(ii) the prospective investor has a fair market net worth
sufficient to sustain the risks inherent to an investment in the Corporation,
including loss of investment and lack of liquidity; and
(iii) investment in the Corporation is otherwise suitable
for the prospective investor; and
(2) maintain documents disclosing the basis upon which the
determination of suitability was reached as to each prospective investor.
7. INDEMNIFICATION. The Corporation shall indemnify and hold harmless
Terner and each of Terner's affiliates within the meaning of the Act against any
losses, claims, damages or liabilities, joint or several, including costs and
reasonable attorneys fees incurred in the investigation and defense of such
claims, to which Terner or such controlling person may become subject under the
Act or otherwise, insofar, as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Offering
Memorandum, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse Terner and each such affiliate for any legal or other
expenses
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reasonably incurred in connection with investigating or defending any such
loss, claim, damage, liability or action.
8. NOTICE. Any notice, payment, demand or communication required or
permitted to be given by any provision of this Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally in
writing to the party or to an officer of the party to whom the same is directed
or if sent by registered or certified mail, postage and charges prepaid,
addressed as follows:
If to Corporation:
Med-Search, Inc.
00000 Xxxxx Xxxxx Xxxx, Xxxxx X
Xxxxxxxxxx Xxxxx, Xxxxxxxxxx 00000
If to Terner:
Xxxxx X. Xxxxxx, M.D.
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxx Xxxxxxxxx, XX 00000
Any such notice shall be deemed to be given on the date on which the same
is delivered, if delivered personally, or two days after the date the same is
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed and sent as aforesaid.
9. CONSTRUCTION. The parties have each been represented by separate
counsel and have participated jointly in the negotiation and drafting of this
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 Agreement.
10. GOVERNING LAW. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of California.
11. DISPUTE RESOLUTION.
(a) In the event the parties hereto are unable to resolve any dispute
in connection with this Agreement, the parties agree to arbitrate in accordance
with the following.
(b) There shall be one arbitrator. If the parties shall fail to
select a mutually acceptable arbitrator within ten (10) days after the demand
for arbitration is mailed, the parties stipulate to arbitration before a retired
judge sitting on the Los Angeles Judicial Arbitration Mediation Services (JAMS)
panel.
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(c) The parties shall share all costs of arbitration. The prevailing
party shall be entitled to reimbursement by the other party(ies) of such
party's(ies') attorney's fees and costs and any arbitration fees and expenses
incurred in connection with the arbitration hereunder.
(d) The substantive law of the State of California shall be applied
by the arbitrator to the resolution of the dispute. The parties shall have the
rights of discovery as provided for in Part 4 of the California Code of Civil
Procedure and as provided for in Section 1283.05 of said Code. The California
Code of Evidence shall apply to testimony and documents submitted to the
arbitrator.
(e) Arbitration shall take place in Los Angeles, California, unless
the parties otherwise agree. As soon as reasonably practicable, a hearing with
respect to the dispute or matter to be resolved shall be conducted by the
arbitrator. As soon as reasonably practicable thereafter, the arbitrator shall
arrive at a final decision, which shall be reduced to writing, signed by the
arbitrator and mailed to each of the parties and their legal counsel.
(f) All decisions of the arbitrator shall be final, binding and
conclusive on all parties and shall constitute the only method of resolving
disputes or 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 arbitrators judgment. Judgment may be entered upon such a
decision in accordance with applicable law in any court having jurisdiction
thereof.
(g) Notwithstanding the foregoing, because time is of the essence of
this Agreement, the parties specifically reserve the right to seek a judicial
temporary restraining order, preliminary injunction, or other similar short term
equitable relief, and grant the arbitrator the right to make a final
determination of the parties' rights, including whether to make permanent or
dissolve such court order.
12. ATTORNEYS' FEES. 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.
13. SEVERABILITY. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
14. PARTIES IN INTEREST. Terner's assigns and designees are expressly made
third party beneficiaries of this Agreement. Except as specifically set forth
in this Section, nothing expressed
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or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim hereunder.
15. EXECUTION OF COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which, when so executed and delivered, shall be
deemed to be an original and all of which, when taken together, shall constitute
but one and the same instrument.
16. HEADINGS. Section and paragraph headings used in this Agreement have
been inserted for convenience of reference only, do not constitute a part of
this Agreement and shall not affect the construction of this Agreement.
17. ENTIRE AGREEMENT. All prior agreements, representations and
understandings between the parties are incorporated in this Agreement which
constitutes the entire contract between the parties. The terms of this
Agreement are intended by the parties as a final expression of their agreement
with respect to such terms as are included herein and may not be contradicted by
evidence of any prior or contemporaneous written or oral representations,
agreements or understandings, whether express or implied. The parties further
intend that this Agreement constitutes the complete and exclusive statement of
its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial proceeding, if any, involving this Agreement. No amendment or
variation of the terms of this Agreement shall be valid unless made in writing
and signed by each of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MED-SEARCH, INC.
By: /s/ X. X. XXXXXXXXXX
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Its: President
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XXXXX X. XXXXXX, M.D.
/s/ Xxxxx X. Xxxxxx, M.D.
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