THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY
UNLESS SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
AMENDED AND RESTATED WARRANT
Company: Prospect Medical Holdings, Inc.,
a Delaware corporation
Number of Shares: One Hundred Thirty-Two Thousand Three Hundred
Seventy-Five (132,375)
Class of Stock: Common Stock
Initial Exercise Price: $5.00 per share
Issued as of: July 3, 1997
Expiration Date: Seven (7) years after the date of this Warrant.
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, Prospect Medical Holdings, Inc., a Delaware corporation, hereby
certifies that IMPERIAL BANK, a California banking corporation, and its
successors and assigns, are entitled to purchase from the Company at any time
and from time to time on and after the date hereof until 12:00 midnight
California local time on the Expiration Date at an initial exercise price of
FIVE DOLLARS AND NO CENTS ($5.00) per share of Common Stock One Hundred
Thirty-Two Thousand Three Hundred Seventy-Five (132,375) fully paid and
nonassessable shares of Common Stock of the Company; on the terms and conditions
hereinafter set forth.
The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in this Warrant. Anything contained in this
Warrant to the contrary notwithstanding, the number of shares of Common Stock
which may be issued upon exercise of this Warrant by any Regulated Warrantholder
shall never exceed such amount (the "Maximum Amount") as may be permitted under
the Bank Holding Company Act, or any
1
successor statute, or under any other federal or state banking laws or
regulations to which such Regulated Warrantholder may be subject at the time of
such exercise. If the number of shares of Common Stock which may be issued upon
exercise of this Warrant exceeds the Maximum Amount, the number of shares of
Common Stock into which this Warrant may be exercised will be reduced to the
Maximum Amount and the Company will pay to Imperial by check or in cash such
amount that equals (a) the difference obtained by subtracting the Exercise Price
from the Current Market Price, multiplied by (b) the number of shares of Common
Stock by which the Warrant is reduced pursuant to this Paragraph.
1. Certain Definitions. As used in this Warrant, the following terms
have the following definitions:
"ADDITIONAL SHARES OF COMMON STOCK" means all shares of Common Stock issued
or issuable by the Company after the date of this Warrant.
"BANK" means IMPERIAL BANK, a California banking corporation, and its
successors and assigns.
"COMMON STOCK" means the Company's Common Stock, par value $.01 per share,
and includes any common stock of the Company of any class or classes resulting
from any reclassification or reclassifications thereof which is not limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
"COMPANY" means Prospect Medical Holdings, Inc., a Delaware corporation.
"CONVERTIBLE SECURITIES" means evidence of indebtedness, shares of stock or
other securities which are at any time directly or indirectly convertible into
or exchangeable for Additional Shares of Common Stock.
"CURRENT MARKET PRICE" of a share of Common Stock or of any other
security as of a relevant date means: (i) the Fair Value thereof as
determined in accordance with clause (ii) of the definition of Fair Value
with respect to Common Stock or any other security that is not listed on a
national securities exchange or traded on the over-the-counter market or
quoted on NASDAQ, and (ii) the average of the daily closing prices for the
ten (10) trading days before such date (excluding any trades which are not
bona fide arm's length transactions) with respect to Common Stock or any
other security that is listed on a national securities exchange or traded on
the over-the-counter market or quoted on NASDAQ. The closing price for each
day shall be (i) the last sale price of shares of Common Stock or such other
security, regular way, on such date or, if no such sale takes place on such
date, the average of the closing bid and asked prices thereof on such date,
in each case as officially reported on the principal national securities
exchange on which the same are then listed or admitted to trading, or (ii) if
no shares of Common Stock or if no securities of the same class as such other
security are then listed or admitted to trading on any national securities
2
exchange, the average of the reported closing bid and asked prices thereof on
such date in the over-the-counter market as shown by the National Association of
Securities Dealers automated quotation system or, if no shares of Common Stock
or if no securities of the same class as such other security are then quoted in
such system, as published by the National Quotation Bureau, Incorporated or any
similar successor organization, and in either case as reported by any member
firm of the New York Stock Exchange selected by the Warrantholders.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXERCISE PERIOD" means the period commencing on the date hereof and ending
at 12:00 midnight California local time on the Expiration Date.
"EXERCISE PRICE" means initially Five Dollars and No Cents ($5.00) per
share, subject to adjustment as provided in this Warrant.
"EXPIRATION DATE" means the date that is Seven (7) years after the date of
this Warrant.
"FAIR VALUE" means: (i) with respect to a share of Common Stock or any
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the following procedure: The Company and the holders of the Warrants and
Warrant Shares, as applicable, shall use their best efforts to mutually agree to
a determination of Fair Value within ten (10) days of the date of the event
requiring that such a determination be made. If the Company and such holders
are unable to reach agreement within said ten (10) day period, the Company and
such holders shall within ten (10) days of the expiration of the ten (10) day
period referred to above each retain a separate independent investment banking
firm (which firm shall not be the investment banking firm regularly retained by
the Company). If either the Company or such holders fails to retain such an
investment banking firm during such period, then the independent investment
banking firm retained by such holders or the Company, as the case may be, acting
alone, shall take the actions outlined below. Such firms shall determine
(within thirty (30) days of their being retained) the Fair Value of the
security, property, assets, business or entity, as the case may be, in question
and deliver their opinion in writing to the Company and to such holders. If
such firms cannot jointly make the determination, then, unless otherwise
directed by agreement of the Company and such holders, such firms, in their sole
discretion, shall choose another investment banking firm independent of the
Company and such holders, which firm shall make the determination and render an
opinion as promptly as practicable. In either case, the determination so made
shall be conclusive and binding on the Company and such holders. The fees and
expenses of any such determination made by any and all such independent
investment banking firms shall be paid by the Company. If there is more than
one holder of Warrants, and/or Warrant Shares entitled to a determination of
Fair Value in any particular instance, each action to be taken by the holders of
such Warrants and/or Warrant Shares under this Section shall be taken by a
majority in interest of such holders
3
and the action taken by such majority (including as to any mutual agreement with
the Company with respect to Fair Value and as to any selection of investment
banking firms) shall be binding upon all such holders. In the case of a
determination of the Fair Value per share of Common Stock, the Company and such
holders shall not take into consideration, and shall instruct all such
investment banking firms not to take into consideration, any premium for shares
representing control of the Company, any discount for any minority interest
therein or any restrictions on transfer under applicable federal and state
securities laws or otherwise.
"INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" have the meanings set forth in
Section 11(e)(iii).
"LOAN AGREEMENT" means that certain Loan Agreement of even date herewith
between the Company and the Bank.
"PROTECTED PERIOD" means the period beginning on the date which is ten (10)
days prior to the anticipated effective date of a registration statement filed
pursuant to Sections 11(a) or 11(b) hereof in connection with an underwritten
offering, as set forth in a written notice given to the Company by the managing
underwriter in such offering, and ending on the earlier of (a) the ninetieth
(90th) day following the effective date of such registration statement, or
(b) twenty (20) days following said anticipated effective date, if such
registration statement has not become effective by that time, and (c) the date
on which all of the securities to be sold pursuant thereto have been sold.
"REGISTRABLE STOCK" means: (i) all Warrant Shares which are issuable to the
Warrantholders pursuant to the Warrants, whether or not the Warrants have in
fact been exercised and whether or not such Warrant Shares have in fact been
issued, (ii) all Warrant Shares acquired by the Warrantholders pursuant to the
Warrants, (iii) any shares of Common Stock, whether or not such shares of Common
Stock have in fact been issued, and stock or other securities of the Company
issued upon conversion of, in a stock split or reclassification of, or a stock
dividend or other distribution on, or in substitution or exchange for, or
otherwise in connection with, such Warrant Shares. For purposes of Section 11,
a Warrantholder of record shall be treated as the record holder of the related
Warrant Shares and other securities issuable pursuant to the Warrants.
"REGULATED WARRANTHOLDER" means any Warrantholder which is, or the parent
of which is, subject to the Bank Holding Company Act, or any successor statute,
or any other federal or state banking laws and regulations.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"WARRANT(S)" means this Warrant and any warrants issued in exchange or
replacement of this Warrant or upon transfer hereof.
"WARRANTHOLDER(S)" means the Bank and its successors and assigns.
4
"WARRANT SHARES" means shares of Common Stock issuable to Warrantholders
pursuant to the Warrants.
2. EXERCISE OF WARRANT. This Warrant may be exercised, in whole or in
part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price
(subject to adjustment as provided herein) for the shares of Common Stock in
respect of which the Warrant is exercised.
3. FORM OF PAYMENT OF EXERCISE PRICE. Anything contained herein to the
contrary notwithstanding, at the option of the Warrantholders, the Exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholder's check to the Company,
(c) by the cancellation of any indebtedness owed by the Company and/or any
subsidiaries of the Company to the Warrantholder, and/or (d) by the surrender to
the Company of Warrants, Warrant Shares, Common Stock and/or other securities of
the Company and/or any subsidiaries of the Company having a Fair Value equal to
the Exercise Price.
4. CASHLESS EXERCISE/CONVERSION. In lieu of exercising this Warrant as
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option convert this Warrant, in whole or in part, into a
number of shares of Common Stock of the Company determined by dividing (A) the
aggregate Fair Value of such shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Exercise Price of such shares by
(B) the Fair Value of one such share.
5. CERTIFICATES FOR WARRANT SHARES; NEW WARRANT. The Company agrees that
the Warrant Shares shall be deemed to have been issued to the Warrantholders as
the record owner of such Warrant Shares as of the close of business on the date
on which payment for such Warrant Shares has been made (or deemed to be made by
conversion) in accordance with the terms of this Warrant. Certificates for the
Warrant Shares shall be delivered to the Warrantholders within a reasonable
time, not exceeding five (5) days, after this Warrant has been exercised or
converted. A new Warrant representing the number of shares, if any, with
respect to which this Warrant remains exercisable also shall be issued to the
Warrantholders within such time so long as this Warrant has been surrendered to
the Company at the time of exercise.
6. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES AND NATURE OF
SECURITIES ISSUABLE UPON EXERCISE OF WARRANTS.
(a) EXERCISE PRICE: ADJUSTMENT OF NUMBER OF SHARES. The Exercise
Price shall be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment of the Exercise Price, the Warrantholders shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment, a
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number
5
of shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(b) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK. If
and whenever after the date hereof the Company shall issue or sell Additional
Shares of Common Stock without consideration or for a consideration per share
less than the Current Market Price or the Exercise Price then in effect
immediately prior to the issuance or sale of such shares, then the Exercise
Price in effect immediately prior to such issuance or sale of such shares shall
be reduced to a number which shall be calculated by dividing (A) an amount equal
to the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale MULTIPLIED BY the then existing Exercise Price PLUS
(2) the aggregate consideration, if any, received by the Company upon such issue
or sale, by (B) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
No adjustment of the Exercise Price, however, shall be made in an
amount less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to $.01 per share or more.
The provisions of this Section 6(b) shall not apply to any
Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split for which an adjustment is provided for under
Section 6(f).
(c) FURTHER PROVISIONS FOR ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK AND CONVERTIBLE SECURITIES. For purposes
of Section 6(b), the following provisions shall also be applicable:
(i) In case at any time on or after the date hereof, the
Company shall declare any dividend, or authorize any other distribution, upon
any stock of the Company of any class, payable in Additional Shares of Common
Stock or by the issuance of Convertible Securities, such declaration or
distribution shall be deemed to have been issued or sold (as of the record date)
without consideration and shall thereby cause an adjustment in the Exercise
Price as required by Section 6(b).
(ii) (A) In case at any time on or after the date hereof,
the Company shall in any manner issue or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, there shall be determined the price per share for which Additional
Shares of Common Stock are issuable upon the conversion or exchange thereof,
such determination to be made by dividing (a) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof by (b) the maximum aggregate number of Additional Shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities for such
minimum aggregate
6
amount of additional consideration; and such issue or sale shall be deemed to be
an issue or sale for cash (as of the date of issue or sale of such Convertible
Securities) of such maximum number of Additional Shares of Common Stock at the
price per share so determined, and shall thereby cause an adjustment in the
Exercise Price, if such an adjustment is required by Section 6(b) hereof.
(B) If such Convertible Securities shall by their
terms provide for an increase or increases, with the passage of time, in the
amount of additional consideration, if any, payable to the Company, or in the
rate of exchange upon the conversion or exchange thereof, the adjusted Exercise
Price shall, upon any such increase becoming effective, be increased to such
Exercise Price as would have been in effect had the adjustments made upon the
issuance of such Convertible Securities been made upon the basis of (and the
total consideration received therefor) (a) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such
Convertible Securities, (b) the issuance of all Common Stock, all Convertible
Securities and all rights and options to purchase Common Stock issued after the
issuance of such Convertible Securities, and (c) the original issuance at the
time of such change of any such Convertible Securities then still outstanding;
PROVIDED, HOWEVER, that any such increase or increases shall not exceed, in the
aggregate, the amount of the original reduction of the Exercise Price
attributable to the Convertible Securities.
(C) If any rights of conversion or exchange evidenced
by such Convertible Securities shall expire without having been exercised, the
adjusted Exercise Price shall forthwith be readjusted to such Exercise Price as
would have been in effect had an adjustment with respect to such Convertible
Securities been made on the basis that the only Additional Shares of Common
Stock issued or sold were those issued upon the conversion or exchange of such
Convertible Securities, and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of such Convertible
Securities.
(iii) (A) In case at any time on or after the date hereof,
the Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock,
whether or not such rights or options are immediately exercisable, except for
the granting of employee stock options to purchase one hundred thirty thousand
(130,000) shares of the Company's Common Stock per year, at an exercise price
equal to the Current Market Price, and except for: (x) four hundred
seventy-seven thousand one hundred nineteen (477,119) shares of Common Stock
issuable upon exercise of those outstanding employee stock options which are in
existence as of the date hereof, and (y) one hundred nineteen thousand four
hundred one (119,401) shares of Common Stock issuable upon the exercise of
warrants in existence as of the date hereof, other than this Warrant, and
issuable under certain other agreements of the Company which agreements are in
existence as of the date hereof, as such shares of Common Stock are more fully
set forth in Section 12(a) below, there shall be determined the price per share
for which Additional Shares of Common Stock are issuable upon the
7
exercise of such rights or options, such determination to be made by dividing
(a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such rights or options if the maximum number of
Additional Shares were issued pursuant to such rights or options for such
minimum aggregate amount of additional consideration, by (b) the maximum
number of Additional Shares of Common Stock of the Company issuable upon the
exercise of all such rights or options for such minimum aggregate amount of
additional consideration; and the granting of such rights or options shall be
deemed to be an issue or sale for cash (as of the date of the granting of
such rights or options) of such maximum number of Additional Shares of Common
Stock at the price per share so determined, and shall thereby cause an
adjustment in the Exercise Price, if such an adjustment is required by
Section 6(b) hereof.
(B) If such rights or options shall by their terms
provide for an increase or increases, with passage of time, in the amount of
additional consideration payable to the Company upon the exercise thereof, the
adjusted Exercise Price shall, upon any such increases becoming effective, be
increased to such Exercise Price as would have been in effect had the
adjustments made upon the issuance of such rights or options been made upon the
basis of (and the total consideration received therefor) (a) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such rights or options, (b) the issuance of all Common Stock, all
rights and options and all Convertible Securities issued after the issuance of
such rights and options, and (c) the original issuance at the time of such
change of any such rights or options then still outstanding; PROVIDED, HOWEVER,
that any such increase or increases in the Exercise Price shall not exceed, in
the aggregate, the amount of the original reduction of the Exercise Price
attributable to the grant of such rights or options.
(C) If any such rights or options shall expire without
having been exercised, the adjusted Exercise Price shall forthwith be readjusted
to such Exercise Price as would have been in effect had an adjustment with
respect to such rights or options been made on the basis that the only
Additional Shares of Common Stock so issued or sold were those issued or sold
upon the exercise of such rights or options and that they were issued or sold
for the consideration actually received by the Company upon such exercise, plus
the consideration, if any, actually received by the Company for the granting of
such rights or options.
(iv) (A) In case at any time on or after the date hereof,
the Company shall grant any rights or options to subscribe for, purchase or
otherwise acquire Convertible Securities, there shall be determined the price
per share for which Additional Shares of Common Stock are issuable upon the
exchange or conversion of such Convertible Securities if such rights or options
were exercised, such determination to be made by dividing (a) the total amount,
if any, received or receivable by the Company as consideration for the issuance
of such rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such rights
or options if the maximum number of Convertible Securities were issued pursuant
to such
8
rights or options for such minimum aggregate amount of additional consideration,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exchange or conversion of such Convertible Securities if
the maximum number of Additional Shares were issued pursuant to such Convertible
Securities for such minimum aggregate amount of additional consideration, by
(b) the maximum aggregate number of Additional Shares of Common Stock issuable
upon the exchange or conversion of the Convertible Securities for such minimum
aggregate amount of additional consideration; and the issue or sale of such
rights or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
thereby shall cause an adjustment in the Exercise Price, if such an adjustment
is required by Section 6(b).
(B) If such rights or options to subscribe for or
otherwise acquire Convertible Securities shall by their terms provide for an
increase or increases, with the passage of time, in the amount of additional
consideration payable to the Company upon the exercise, exchange or conversion
thereof, the adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be increased to such Exercise Price as would have been in
effect had the adjustments made upon the issuances of such rights or options
been made upon the basis of (and the total consideration received therefor)
(a) the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exchange or conversion of such Convertible Securities,
(b) the issuances of all Common Stock and all rights, options and Convertible
Securities issued after the issuance of such rights and options, and (c) the
original issuances at the time of such change of any such rights, options and
Convertible Securities issued upon exercise of such rights or options which are
then still outstanding; provided, however, that any such increase or increases
shall not exceed, in the aggregate, the amount of the original reduction of the
Exercise Price attributable to the grant of such rights or options.
(C) If any such rights, options or rights of
conversion or exchange of such Convertible Securities shall expire without
having been exercised, exchanged or converted, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in effect had
an adjustment been made with respect to such rights, options or rights of
conversion or exchange of such Convertible Securities on the basis that the only
Additional Shares of Common Stock so issued or sold were those issued or sold
upon the exercise of such rights or options and exchange or conversion of such
Convertible Securities and that they were issued or sold for the consideration
actually received by the Company upon exercise of such rights and options and
exchange or conversion of such Convertible Securities, plus the consideration,
if any, actually received by the Company for the granting of such rights,
options or Convertible Securities.
(v) In any case where an adjustment has been made in the
Exercise Price upon the issuance of Convertible Securities or any rights or
options to purchase Convertible Securities or Additional Shares of Common Stock
pursuant to this Section 6(c), no further adjustment shall be made at the time
of the conversion of any such Convertible Securities or at the time of the
exercise of any such rights or options.
9
(vi) In case at any time on or after the issuance of this
Warrant any shares of Common Stock or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash payable to the Company shall be deemed to be the Fair Value of such
consideration. Whether or not the consideration so received is cash, the amount
thereof shall be determined after deducting therefrom any expenses incurred or
any underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith.
(vii) In case at any time the Company shall fix a record date
of the holders of its Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common Stock, Convertible
Securities or rights or options to purchase either thereof, or (b) to subscribe
for or purchase Common Stock, Convertible Securities or rights or options to
purchase either thereof, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed, pursuant to this
Section 6(c), to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(viii) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this Section 6(c).
(d) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive cash, stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Warrantholders shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant upon exercise of this Warrant and in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such cash, shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the number of shares
of such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
Warrantholders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any consolidation, merger or sale of all or
substantially all of the assets of the Company unless prior to or simultaneous
with the consummation thereof the successor
10
corporation (if other than the Company) resulting from such consolidation,
merger or purchase of such assets shall assume, by written instrument executed
and mailed or delivered to the Warrantholders, the obligation to deliver to such
Warrantholders such cash (or cash equivalent), shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Warrantholders may
be entitled to receive and containing the express assumption of such successor
corporation of the due and punctual performance and observance of each provision
of this Warrant to be performed and observed by the Company and of all
liabilities and obligations of the Company hereunder; PROVIDED, HOWEVER, in the
case of any consolidation or merger of the Company with another corporation or
the sale of all or substantially all of its assets to another corporation
effected in such a manner that the holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, at the election of each Warrantholder, in lieu of receiving such
stock, securities or assets, such Warrantholder shall receive cash equal to the
Fair Value of the Common Stock issuable upon exercise of the Warrant, less the
Exercise Price payable upon exercise thereof.
In case any Additional Shares of Common Stock or Convertible
Securities or any rights or options to purchase any Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, except for any acquisitions made by the
Company with the proceeds of the loan from the Bank, as set forth in the Loan
Agreement, of management service organizations which manage medical practices,
the amount of consideration therefor shall be deemed to be the Fair Value of
such portion of the assets of such merged corporation as the Board of Directors
of the Company shall in good faith determine to be attributable to such
Additional Shares of Common Stock, Convertible Securities or rights or options,
as the case may be, and the Exercise Price shall be adjusted in accordance with
this Section 6(d).
(e) COMPANY TO PREVENT DILUTION. In case at any time or from time to
time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the Warrantholders. Upon receipt of such opinion, such
Board of Directors shall forthwith make the adjustments described therein.
(f) STOCK SPLITS AND REVERSE SPLITS. In case at any time the Company
shall subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately
11
reduced and the number of shares of Common Stock purchasable pursuant to this
Warrant immediately prior to such subdivision shall be proportionately
increased, and conversely, in case at any time the Company shall combine its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased and the number of shares of Common Stock purchasable upon the exercise
of this Warrant immediately prior to such combination shall be proportionately
reduced.
(g) DISSOLUTION, LIQUIDATION AND WINDING-UP. In case the Company
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Warrantholders shall be entitled, upon the exercise
of this Warrant, to receive, in lieu of the shares of Common Stock of the
Company which such Warrantholders would have been entitled to receive, the same
kind and amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating distribution. After any such dissolution,
liquidation or winding up which shall result in any cash distribution in excess
of the Exercise Price provided for by this Warrant, the Warrantholders may, at
each such Warrantholder's option, exercise the same without making payment of
the Exercise Price, and in such case the Company shall, upon the distribution to
said Warrantholders, consider that said Exercise Price has been paid in full to
it and in making settlement to said Warrantholders, shall deduct from the amount
payable to such Warrantholders an amount equal to such Exercise Price.
(h) NONCASH CONSIDERATION. In case any Additional Shares of Common
Stock or Convertible Securities or any rights or options to purchase any
Additional Shares of Common Stock or Convertible Securities shall be issued for
a consideration in a form other than cash, the amount of such consideration
shall be deemed to be the Fair Value thereof.
(i) ACCOUNTANTS' CERTIFICATE. In each case of an adjustment in the
number of shares of Common Stock or other stock, securities or property
receivable on the exercise of the Warrants, the Company at its expense shall
cause independent public accountants of recognized standing selected by the
Company and acceptable to the Warrantholders to compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights,
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable upon exercise of this Warrant. The Company will forthwith mail
a copy of each such certificate to each Warrantholder.
12
7. SPECIAL AGREEMENTS OF THE COMPANY.
(a) RESERVATION OF SHARES. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.
(b) AVOIDANCE OF CERTAIN ACTIONS. The Company will not, by amendment
of its Articles or Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of securities or
otherwise, avoid or take any action which would have the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all of the provisions of this Warrant and in taking all of such action as
may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) SECURING GOVERNMENTAL APPROVALS. If any shares of Common Stock
required to be reserved for the purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal
law (other than the Securities Act) or under any state law before such shares
may be issued upon exercise of this Warrant, the Company will, at its expense,
as expeditiously as possible, cause such shares to be duly registered or
approved, as the case may be.
(d) LISTING ON SECURITIES EXCHANGES; REGISTRATION. If, and so long
as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing upon official notice of
issuance of all Warrant Shares and maintain the listing of Warrant Shares after
their issuance; and the Company will so list on such national securities
exchange, will register under the Exchange Act (or any similar statute then in
effect), and will maintain such listing of, any other securities that at any
time are issuable upon exercise of this Warrant if and at the time any
securities of the same class shall be listed on such national securities
exchange by the Company.
(e) INFORMATION RIGHTS. So long as the Warrantholders hold this
Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within forty-five (45) days after the end of each
13
of the first three quarters of each fiscal year, the Company's quarterly,
unaudited financial statements.
(f) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company will not
effect any public or private sale or distribution of its convertible debt or
equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the Protected Period of each underwritten offering by the
Company made pursuant to a registration statement filed pursuant to
Sections 11(a) or 11(b). In addition, the Company shall cause each holder of
its privately placed convertible debt or equity securities issued by it at any
time on or after the date of this Warrant to agree not to effect any public sale
or distribution of any such securities during such Period, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act; provided, however,
that no such agreement shall be required with respect to any such debt or equity
securities which are to be issued by the Company in a transaction which is
intended to be treated as a pooling of interests if the existence of such
agreement would cause the transaction to fail to qualify for such treatment.
(g) PREEMPTIVE RIGHTS. In the event the Company offers to the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.
(h) COMPLIANCE WITH LAW. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
8. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. NOTICES OF STOCK DIVIDENDS, SUBSCRIPTIONS, RECLASSIFICATIONS,
CONSOLIDATIONS, MERGERS, ETC. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown
14
on the books of the Company, at least twenty (20) days prior to the applicable
record date hereinafter specified, a written notice summarizing such action or
event and stating the record date for any such dividend or rights (or, if a
record date is not to be selected, the date as of which the holders of Common
Stock of record entitled to such dividend or rights are to be determined), the
date on which any such reorganization, reclassification, consolidation, merger,
sale of assets, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected the holders of Common Stock
of record shall be entitled to effect any exchange of their shares of Common
Stock for cash (or cash equivalent), securities or other property deliverable
upon any such reorganization, reclassification, consolidation, merger, sale of
assets, dissolution, liquidation or winding up.
10. REGISTERED HOLDER; TRANSFER OF WARRANTS OR WARRANT SHARES.
(a) MAINTENANCE OF REGISTRATION BOOKS; OWNERSHIP OF THIS WARRANT.
The Company shall keep at its principal office a register in which the Company
shall provide for the registration, transfer and exchange of this Warrant. The
Company shall not at any time, except upon the dissolution, liquidation or
winding-up of the Company, close such register so as to result in preventing or
delaying the exercise or transfer of this Warrant.
(b) EXCHANGE AND REPLACEMENT. This Warrant is exchangeable upon
surrender hereof by the registered holder to the Company at its principal office
for new Warrants of like tenor and date representing in the aggregate the right
to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. Subject to
compliance with all restrictions and provisions of this Warrant, this Warrant
and all rights hereunder are transferable in whole or in part upon the books of
the Company by the registered holder hereof in person or by duly authorized
attorney, and new Warrants shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to said office of
the Company. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, without
requiring the posting of any bond or the giving of any other security. This
Warrant shall be promptly cancelled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall pay
all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 10.
(c) WARRANTS AND WARRANT SHARES NOT REGISTERED. The holder of this
Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares are not being registered under the Securities Act
on the grounds that the issuance of this Warrant and the offering and sale of
such Warrant Shares are exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering.
15
11. REGISTRATION.
(a) REQUIRED REGISTRATION. After three (3) years from the date of
this Warrant, whenever the Company shall receive a written request therefor from
any holder or holders of at least 10% of the Registrable Stock, the Company
shall promptly prepare and file a registration statement under the Securities
Act covering the Registrable Stock which is the subject of such request and
shall use its best efforts to cause such registration statement to become
effective as expeditiously as possible. Upon the receipt of such request, the
Company shall promptly give written notice to all holders of Registrable Stock
that such registration is to be effected. The Company shall include in such
registration statement such Registrable Stock for which it has received written
requests to register such shares by the holders thereof within thirty (30) days
after the effectiveness of the Company's written notice to such other holders.
The Registrable Stock owned by the Bank under this Warrant shall receive
priority over all other shares of stock included in a registration statement
under this Section 11(a). Notwithstanding the above, the Company is obligated
to effect only one (1) registration pursuant to this Section 11(a).
(b) INCIDENTAL REGISTRATION. Each time the Company shall determine
to file a registration statement under the Securities Act (other than on
Form S-8 or Form S-4) in connection with the proposed offer and sale for money
of any of its securities by it or by any of its security holders, the Company
will give written notice of its determination to all holders of Registrable
Stock. Upon the written request of a holder of any Registrable Stock, the
Company will cause all such Registrable Stock, the holders of which have so
requested registration thereof, to be included in such registration statement,
all to the extent requisite to permit the sale or other disposition by the
prospective seller or sellers of the Registrable Stock to be so registered in
accordance with the terms of the proposed offering. If the registration
statement is to cover an underwritten distribution, the Company shall use its
best efforts to cause the Registrable Stock requested for inclusion pursuant to
this Section 11(b) to be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters. If,
in the good faith judgment of the managing underwriter of such public offering,
the inclusion of all of the Registrable Stock requested to be registered would
materially and adversely affect the successful marketing of the other shares
proposed to be offered, then the amount of the Registrable Stock to be included
in the offering shall be reduced and the Registrable Stock and the other shares
to be offered shall participate in such offering as follows: the shares to be
sold by the Company, the Registrable Stock to be included in such offering and
the other shares of Common Stock to be included in such offering shall each be
reduced pro rata in proportion to the number of shares of Common Stock proposed
to be included in such offering by each holder of such shares and by the
Company.
(c) REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Section 11(a) or 11(b) to effect the registration of
Registrable Stock under the Securities Act, the Company will, at its expense, as
expeditiously as possible:
16
(i) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the earlier of (x) the date on
which the securities covered by such registration statement have been sold, or
(y) one hundred eighty (180) days after the effective date thereof, and prepare
and file with the Commission such amendments to such registration statement and
supplements to the prospectus contained therein as may be necessary to keep such
registration statement effective and such registration statement and prospectus
accurate and complete until the securities covered by such registration
statement have been sold;
(ii) If the offering is to be underwritten, in whole or in
part, enter into a written underwriting agreement with the holders of the
Registrable Stock participating in such offering and the underwriter in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock participating in such
offering;
(iii) Furnish to the holders of securities participating in
such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters and
holders may reasonably request in order to facilitate the public offering of
such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders and
underwriters may reasonably request;
(v) Notify the holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(vi) Notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(vii) Prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such holders, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registrable Stock by such holders;
(viii) Prepare and promptly file with the Commission, and
promptly notify such holders of the filing of, such amendments or supplements to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at
17
the time when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event has occurred as the result of
which any such prospectus or any other prospectus as then in effect may include
an 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;
(ix) In case any of such holders or any underwriter for any
such holders is required to deliver a prospectus at a time when the prospectus
then in circulation is not in compliance with the Securities Act or the rules
and regulations of the Commission, prepare promptly upon request such amendments
or supplements to such registration statement and such prospectus as may be
necessary in order for such prospectus to comply with the requirements of the
Securities Act and such rules and regulations;
(x) Advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xi) If requested by the managing underwriter or underwriters
or a holder of Registrable Stock being sold in connection with an underwritten
offering, immediately incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Stock being sold agree should be included therein
relating to the plan of distribution with respect to such Registrable Stock,
including information with respect to the Registrable Stock being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Stock to be sold in such offering; and
make all required filings of such prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(xii) Cooperate with the selling holders of Registrable Stock
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Stock to be sold and not
bearing any restrictive legends; and enable such Registrable Stock to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Stock to the
underwriters;
(xiii) Prepare a prospectus supplement or post-effective
amendment to the registration statement or the related prospectus or any
document incorporated therein by reference or file any other required documents
so that, as thereafter delivered to the purchasers of the Registrable Stock, the
prospectus will not contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein not misleading;
18
(xiv) Enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Stock and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration:
(A) make such representations and warranties to the
holders of such Registrable Stock and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings;
(B) If an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures of
Section 11(e) hereof with respect to all parties to be indemnified pursuant to
said Section; and
(C) The Company shall deliver such documents and
certificates as may be requested by the holders of the majority of the
Registrable Stock being sold and the managing underwriters, if any, to evidence
compliance with the terms of this Section 11(c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(xv) Make available for inspection by a representative of the
holders of a majority of the Registrable Stock, any underwriter participating in
any disposition pursuant to a registration statement, and any attorney or
accountant retained by the sellers or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with the preparation of the registration statement;
provided, that any records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential by such persons
unless disclosure of such records, information or documents is required by court
or administrative order;
(xvi) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to the Company's security holders, earning statements satisfying the provisions
of Section 11(a) of the Securities Act, no later than forty-five (45) days after
the end of any twelve (12) month period (or ninety (90) days, if such a period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Stock is sold to underwriters in an underwritten offering, or, if
not sold to underwriters in such an offering, (ii) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of a registration statement;
19
(xvii) Not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders has
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
five (5) business days prior to the filing thereof; provided, however, that the
failure of such holders or their counsel to review or object to any amendment or
supplement to such registration statement or prospectus shall not affect the
rights of such holders or any controlling person or persons thereof or any
underwriter or underwriters therefor under Section 11(e) hereof; and
(xviii) At the request of any such holder (i) furnish to such
holder on the effective date of the registration statement or, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request, covering
such matters with respect to the registration statement, the prospectus and each
amendment or supplement thereto, proceedings under state and federal securities
laws, other matters relating to the Company, the securities being registered and
the offer and sale of such securities as are customarily the subject of opinions
of issuer's counsel provided to underwriters in underwritten public offerings,
and such opinion of counsel shall additionally cover such legal and factual
matters with respect to the registration as such requesting holder or holders
may reasonably request, and (ii) use its best efforts to furnish to such holder
letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request,
or, if the offering is not underwritten, that in the opinion of such accountants
the financial statements and other financial data of the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act, and additionally covering such other financial matters,
including information as to the period ending immediately prior to the date of
such letter with respect to the registration statement and prospectus, as such
requesting holder or holders may reasonably request.
(d) EXPENSES OF REGISTRATION. All expenses incident to the Company's
performance of or compliance with this Warrant, including, without limitation,
the following shall be borne by the Company, regardless of whether the
registration statement becomes effective:
(i) All registration and filing fees (including those with
respect to filings required to be made with the National Association of
Securities Dealers, Inc.);
(ii) Fees and expenses of compliance with all securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Stock and in determination of their
20
eligibility for investment under the laws of such jurisdictions as the managing
underwriters or holders of a majority of the Registrable Stock being sold may
designate);
(iii) Printing, messenger, telephone and delivery expenses;
(iv) Fees and disbursements of counsel for the Company, the
underwriters and for the sellers of the Registrable Stock as hereinafter
provided;
(v) Fees and disbursements of all independent certified
public accountants of the Company (including the expenses of any special audit
and "comfort" letters required by or incident to such performance);
(vi) Fees and disbursements of underwriters (excluding
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
Registrable Stock or legal expenses of any person other than the Company and the
selling holders); and
(vii) Fees and expenses of other persons retained by the
Company.
The Company will, in any event, pay its internal expenses
(including without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any person, including special experts, retained by the
Company.
In connection with the registration statement required
hereunder, the Company will reimburse the holders of Registrable Stock being
registered pursuant to the registration statement for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if conflict
exists among such selling holders in the exercise of the reasonable judgment of
counsel for the selling holders and counsel for the Company) chosen by the
holders of a majority of such Registrable Stock.
(e) INDEMNIFICATION.
(i) The Company hereby agrees to indemnify each of the
holders of Registrable Stock against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, preliminary or final prospectus, or other document incident to any
such registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company and relating to action or
21
inaction required of the Company in connection with any such registration,
qualification or compliance, and to reimburse the holders of Registrable Stock
(including officers and directors of the same and controlling persons) for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company by Warrantholders in an instrument duly executed by Warrantholders
and stated to be specifically for use therein.
(ii) The Warrantholders severally and not jointly agree to
indemnify the Company and its officers and directors and each person, if any,
who controls any thereof within the meaning of Section 15 of the Securities Act
and their respective successors against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance relating to securities purchased pursuant to the Warrants (or in any
related registration statement, notification or the like) or any 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
the Company and each other person indemnified pursuant to this subsection (ii)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
PROVIDED, HOWEVER, that this subsection (ii) shall apply only if (and only to
the extent that) such statement or omission was made in reliance upon
information (including, without limitation, written negative responses to
inquiries) furnished to the Company by an instrument duly executed by
Warrantholders and stated to be specifically for use in such prospectus, or
other document (or related registration statement, notification or the like) or
any amendment or supplement thereto.
(iii) Each party entitled to indemnification hereunder (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party (at such Indemnifying Party's expense) to assume
the defense of any claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be satisfactory to the Indemnified Party, and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the omission by any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 11(e) except to the extent that the omission results in a
failure of actual notice to the Indemnifying Party and such Indemnifying Party
is materially damaged solely as a result of the failure to give notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the
22
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(iv) If the indemnification provided for in this Section 11(e)
is unavailable or insufficient to hold harmless an Indemnified Party in respect
of any losses, claims, damages, liabilities, expenses or actions in respect
thereof referred to herein, then the Indemnifying Party shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages, liabilities, expenses or actions in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand, and the Indemnified Party on the other, in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities,
expenses or actions as well as any other relevant equitable considerations,
including the failure to give the notice required hereunder. The relative fault
of the Indemnifying Party and the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Indemnifying Party or
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Warrantholders agree that it would not be just and
equitable if contributions pursuant to this Section 11(e) were determined by pro
rata allocation or by any other method of allocation which did not take account
of the equitable considerations referred to above. The amount paid or payable
to an Indemnified Party as a result of the losses, claims, damages, liabilities
or actions in respect thereof, referred to above, shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the contribution provisions of this Section 11(e), in no event
shall the amount contributed by any seller of Registrable Stock exceed the
aggregate net offering proceeds received by such seller from the sale of
Registrable Stock to which such contribution or indemnification claim relates.
No person guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
(v) The indemnification required by this Section 11(e) shall
be made by periodic payments during the course of the investigation or defense,
as and when bills are received or expenses incurred. Anything contained herein
to the contrary notwithstanding, the maximum aggregate liability of any holder
of Registrable Stock under this Section 11(e) shall not exceed the amount of the
net proceeds actually received by such holder from the sale of its Registrable
Stock pursuant to the registration, qualification, notification or compliance in
respect of which such liability arose.
(f) REPORTING REQUIREMENTS UNDER EXCHANGE ACT. From and after the
effective date of the first registration statement filed by the Company under
the Securities Act, the Company shall (whether or not it shall then be required
to do so) timely file such information, documents and reports as the Commission
may require or prescribe under Section 13 or 15(d) (whichever is applicable) of
the Exchange Act. Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the
23
Exchange Act, the Company shall forthwith upon request furnish any holder of
Registrable Stock (i) a written statement by the Company that it has complied
with such reporting requirements, (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents
filed by the Company with the Commission as such holder may reasonably request
in availing itself of an exemption for the sale of Registrable Stock without
registration under the Securities Act. The Company acknowledges and agrees that
the purpose of the requirements contained in this Section 11(f) is to enable any
such holder to comply with the current public information requirement contained
in Rule 144 under the Securities Act should such holder ever wish to dispose of
any of the securities of the Company acquired by it without registration under
the Securities Act in reliance upon Rule 144 (or any other similar exemptive
provision). In addition, the Company shall take such other measures and file
such other information, documents and reports as shall hereafter be required by
the Commission as a condition to the availability of Rule 144 and Rule 144A
under the Securities Act (or any similar exemptive provision hereafter in
effect).
(g) STOCKHOLDER INFORMATION. The Company may require each holder of
Registrable Stock as to which any registration is to be effected pursuant to
this Section 11 to furnish the Company such information with respect to such
holder and the distribution of such Registrable Stock as shall be required by
law or by the Commission in connection therewith.
12. REPRESENTATION AND WARRANTIES. The Company hereby represents and
warrants to and covenants with Imperial, the Bank, each Warrantholder, and each
holder of Warrant Shares that:
(a) ORGANIZATION AND CAPITALIZATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. As of the date hereof, the authorized capital of the
Company consists of forty million (40,000,000) shares of Common Stock and one
million (1,000,000) shares of Preferred Stock, of which four million six hundred
ninety-eight thousand four hundred seventy-one (4,698,471) shares of Common
Stock and no shares of Preferred Stock are issued and outstanding. The Company
has, and at all times during the Exercise Period will have, reserved for
issuance pursuant to the Warrants that number of shares of Common Stock that are
issuable pursuant to the Warrants. No unissued shares of Common Stock are
reserved for any purpose other than: (i) for issuance upon the exercise of the
Warrants, (ii) four hundred seventy-seven thousand one hundred nineteen
(477,119) shares of Common Stock reserved for issuance upon the exercise of
employee stock options, and (iii) one hundred nineteen thousand four hundred one
(119,401) shares of Common Stock reserved for issuance upon the exercise of
warrants other than this Warrant and under certain other agreements of the
Company as in existence on the date hereof. There are no preemptive rights in
effect with respect to the issuance of any shares of Common Stock. All the
outstanding shares of Common Stock and Preferred Stock have been validly issued
without violation of any preemptive or similar rights, are fully paid and
nonassessable and have been issued in compliance with all federal and applicable
state securities laws.
24
(b) AUTHORITY. The Company has full corporate power and authority to
execute and deliver this Warrant, to issue the shares of Common Stock issuable
upon exercise of this Warrant, and to perform all of its obligations hereunder,
and the execution, delivery and performance hereof has been duly authorized by
all necessary corporate action on its part. This Warrant has been duly executed
on behalf of the Company and constitutes the legal, valid and binding obligation
of the Company enforceable in accordance with its terms.
(c) NO LEGAL BAR. Neither the execution, delivery or performance of
this Warrant nor the issuance of the shares of Common Stock issuable upon
exercise of this Warrant will (a) conflict with or result in a violation of the
Certificate of Incorporation or By-Laws of the Company, (b) conflict with or
result in a violation of any law, statute, regulation, order or decree
applicable to the Company or any affiliate, (c) require any consent or
authorization or filing with, or other act by or in respect of any governmental
authority, or (d) result in a breach of, constitute a default under or
constitute an event creating rights of acceleration, termination or cancellation
under any mortgage, lease, contract, franchise, instrument or other agreement to
which the Company is a party or by which it is bound.
(d) VALIDITY OF SHARES. When issued upon the exercise of this
Warrant as contemplated herein, the shares of Common Stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
13. CONTINUING VALIDITY. The Bank and each holder of Warrant Shares shall
continue to be entitled to all rights to which a Warrantholder is entitled
pursuant to the provisions of this Warrant except such rights as by their terms
apply solely to a Warrantholder, notwithstanding the fact that this Warrant has
been exercised or the period of exercisability has expired. The Company will,
at any time upon the request of the Bank or a holder of the Warrant Shares,
acknowledge in writing, in form reasonably satisfactory to the Bank or such
holder, the Company's continuing obligation to afford to the Bank or such holder
all rights to which the Bank or such holder shall continue to be entitled in
accordance with the provisions of this Warrant; PROVIDED, HOWEVER, that if the
Bank or such holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to Imperial, the Bank
and such holder all such rights.
14. MISCELLANEOUS PROVISIONS.
(a) NOTICE OF EXPIRATION. The Company shall give written notice to
the Warrantholders specifically advising them of the Expiration Date and of
their right to exercise the Warrants not more than one hundred eighty (180) days
and not less than ninety (90) days before the Expiration Date. If such written
notice is not so given, the Expiration Date shall automatically be extended
until ninety (90) days after the date that the Company gives the Warrantholders
such written notice.
25
(b) JUDICIAL REFERENCE.
(i) Other than the appointment of a receiver, or the exercise
of other provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim arising out of or relating
to this Warrant, which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "CLAIM DATE" (defined as the date on which the
Company or a Warrantholder gives written notice to the other that a controversy,
dispute or claim exists), will be settled by a reference proceeding in
California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Warrant, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in
counties of Los Angeles or Orange, California (the "COURT"). The referee shall
be a retired Judge of the Court selected by mutual agreement of the parties, and
if they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
or her representative). The referee shall be appointed to sit as a temporary
judge, with all of the powers for a temporary judge, as authorized by law, and
upon selection should take and subscribe to the oath of office as provided for
in Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP Section 170.6.
The referee shall (i) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (ii) try any and all issues of law or fact
and report a statement of decision upon them, if possible, within ninety (90)
days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP Section 644
in any court in the State of California having jurisdiction. Any party may
apply for a reference proceeding at any time after thirty (30) days following
notice to any other party of the nature of the controversy, dispute or claim, by
filing a petition for a hearing and/or trial. All discovery permitted by this
Warrant shall be completed no later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such period in
the event of a party's refusal to provide requested discovery for any reason
whatsoever, including, without limitation, legal objections raised to such
discovery or unavailability of a witness due to absence or illness. No party
shall be entitled to "priority" in conducting discovery. Depositions may be
taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided
herein, the Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(ii) Except as expressly set forth in this Warrant, the
referee shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise
26
with respect to the course of the reference proceeding. All proceedings and
hearings conducted before the referee, except for trial, shall be conducted
without a court reporter except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee. The party
making such a request shall have the obligation to arrange for and pay for the
court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.
(iii) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this provision.
(iv) In the event that the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the Court,
in accordance with the California Arbitration Act, Section 1280 through Section
1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery as set forth hereinabove shall apply to any such arbitration
proceeding.
(c) NOTICES. All notices hereunder shall be in writing and shall be
deemed to have been given five (5) days after being mailed by certified mail,
addressed to the address below stated of the party to which notice is given, or
to such changed address as such party may have fixed by notice:
To the Company: Prospect Medical Holdings, Inc.
00000 Xxxxx Xxxxx Xxxx.
Xxxxx Xxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, M.D., Chief Executive
Officer
With a copy (which
shall not constitute
notice) to: Xxxx X. Xxxxxx, Esq.
Xxxxxx & Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
27
To the
Warrantholders
or holder of
Warrant Shares: Imperial Bank
000 Xxxxx Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Roc X. Xxxxxxxxx, Senior Vice President
With a copy (which
shall not constitute
notice) to: Xxxxxxx X. Xxxxx, Esq.
Senior Vice President and General Counsel
IMPERIAL BANK
0000 Xxxxx Xx Xxxxxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
provided, however, that any notice of change of address shall be effective only
upon receipt.
(d) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and
inure to the benefit of the Company, the Bank, the Warrantholders and the
holders of Warrant Shares and the successors, assigns and transferees of the
Company, the Bank, the Warrantholders and the holders of Warrant Shares.
(e) ATTORNEYS' FEES. The Company agrees to pay, on demand, all
attorneys' fees (including attorneys' fees incurred pursuant to proceedings
arising under the Bankruptcy Code) and all other costs and expenses which may be
incurred by Imperial, the Bank, the Warrantholders and the holders of Warrant
Shares in connection with any amendment to this Warrant and/or in connection
with the enforcement of this Warrant or in any way arising out of, or
consequential to the protection, assertion, or enforcement of the Obligations
under the Loan Agreement (or any security therefor), whether or not suit is
brought.
(f) ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Warrant sets
forth the entire understanding of the parties with respect to the transactions
contemplated hereby. The failure of any party to seek redress for the violation
or to insist upon the strict performance of any term of this Warrant shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance. This Warrant may be amended, the
Company may take any action herein prohibited or omit to take action herein
required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or written waiver of the majority in
interest of the Warrantholders, and then such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given.
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(g) SEVERABILITY. If any term of this Warrant as applied to any
person or to any circumstance is prohibited, void, invalid or unenforceable in
any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction.
(h) HEADINGS. The headings in this Warrant are inserted only for
convenience of reference and shall not be used in the construction of any of its
terms.
(i) AMENDMENT AND RESTATEMENT. This Warrant amends and restates in
its entirety the original warrant issued to Imperial Bancorp as of July 3, 1997,
which is being assigned to the Bank concurrently herewith, surrendered herewith,
exchanged for this Warrant and cancelled, and such exchange is being effected
solely in consideration for the exchange of this Warrant for the other warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officers effective as of the date first set forth above.
Prospect Medical Holdings, Inc.,
a Delaware corporation
By /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name:
---------------------------------
Title: CFO
--------------------------------
29
