AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
MED-SEARCH, INC.,
MED-SEARCH ACQUISITION CORPORATION,
AND
PROSPECT MEDICAL SYSTEMS, INC.
JUNE 10, 1996
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 OTHER DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE 2
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.1 EFFECTIVE TIME OF THE MERGER . . . . . . . . . . . . . . . . . . . . . .3
2.2 EFFECTS OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . .3
2.3 EFFECT ON CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . .3
2.4 EXCHANGE OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . .4
2.5 BOARD OF DIRECTORS, OFFICERS . . . . . . . . . . . . . . . . . . . . . .5
2.6 NO FURTHER OWNERSHIP RIGHTS IN PROSPECT MEDICAL SYSTEMS COMMON . . . . .6
2.7 TAX TREATMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.8 SECTION 203 OF THE DGCL NOT APPLICABLE . . . . . . . . . . . . . . . . .6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PROSPECT MEDICAL SYSTEMS AND PROSPECT
MEDICAL GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2 CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.3 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.4 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.5 BUSINESS CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.6 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.7 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.10 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 LICENSURE AND REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . 12
3.13 FRAUD AND ABUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.15 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.16 PROPRIETARY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.17 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.18 CERTAIN ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.19 RELATED PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.20 UNDERLYING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.21 EMPLOYEES AND UNION ACTIVITIES . . . . . . . . . . . . . . . . . . . . 15
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3.22 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . 15
3.23 ACTIVITIES OF PROVIDERS AND ENROLLEE GROUPS. . . . . . . . . . . . . . 17
3.24 INSPECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.25 SECTION 203 OF THE DGCL NOT APPLICABLE . . . . . . . . . . . . . . . . 17
3.26 REPRESENTED BY COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MED-SEARCH,
MS ACQUISITION CORPORATION AND
SUNCREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 MS ACQUISITION CORPORATION CAPITAL STRUCTURE . . . . . . . . . . . . . 18
4.3 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 BUSINESS CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.9 REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.10 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.11 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 LICENSURE AND REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . 24
4.14 FRAUD AND ABUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.15 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.17 PROPRIETARY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.18 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.19 CERTAIN ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.20 RELATED PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.21 UNDERLYING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.22 EMPLOYEES AND UNION ACTIVITIES . . . . . . . . . . . . . . . . . . . . 27
4.23 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . 27
4.24 ACTIVITIES OF PROVIDERS AND ENROLLEE GROUPS. . . . . . . . . . . . . . 28
4.25 INSPECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.26 SECTION 203 OF THE DGCL NOT APPLICABLE . . . . . . . . . . . . . . . . 29
4.27 REPRESENTED BY COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . 29
4.28 REPRESENTED BY COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . 29
5.1 ORDINARY COURSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.2 DIVIDENDS; CHANGES IN STOCK. . . . . . . . . . . . . . . . . . . . . . 29
5.3 ISSUANCE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4 GOVERNING DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 30
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5.5 NO SOLICITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6 NO ACQUISITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.7 NO DISPOSITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.8 INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.9 PROVIDER AND BUSINESS RELATIONS. . . . . . . . . . . . . . . . . . . . 30
5.10 OTHER ACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.11 ADVICE OF CHANGES; GOVERNMENT FILINGS. . . . . . . . . . . . . . . . . 31
5.12 ACCOUNTING METHODS . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.13 TAXFREE REORGANIZATION TREATMENT . . . . . . . . . . . . . . . . . . . 31
5.14 COMPENSATION, BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . 31
5.15 PROSPECT MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 6
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 32
6.2 LEGAL CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . 32
6.3 MED-SEARCH STOCKHOLDERS' APPROVAL. . . . . . . . . . . . . . . . . . . 32
6.4 PROSPECT MEDICAL SYSTEMS STOCKHOLDERS' APPROVAL. . . . . . . . . . . . 33
6.5 DISSENTING SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.6 BLUE SKY LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.7 COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 DELIVERY OF STOCK CERTIFICATES . . . . . . . . . . . . . . . . . . . . 33
6.9 UPDATE TO DISCLOSURES. . . . . . . . . . . . . . . . . . . . . . . . . 33
6.10 GOOD FAITH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.11 STATE STATUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.12 COMPOSITION OF MED-SEARCH BOARD. . . . . . . . . . . . . . . . . . . . 34
6.13 SETTLEMENT OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.14 MAINTENANCE/ASSIGNMENT OF HMO CONTRACTS. . . . . . . . . . . . . . . . 34
6.15 FINDERS FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.16 FAIRNESS OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.17 INCREASE IN NUMBER OF AUTHORIZED SHARES OF MED-SEARCH COMMON . . . . . 34
ARTICLE 7
CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. . . . . . 35
7.2 CONDITIONS TO OBLIGATIONS OF MED-SEARCH AND MS ACQUISITION
CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 CONDITIONS TO OBLIGATIONS OF PROSPECT MEDICAL SYSTEMS. . . . . . . . . 37
ARTICLE 8
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.2 FILING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 PRIVATE PLACEMENT OF MED-SEARCH COMMON . . . . . . . . . . . . . . . . 38
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8.4 APPOINTMENT OF NEW BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . 39
8.5 CLOSING CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . 39
ARTICLE 10
PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 11
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . 40
11.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4 EXTENSION, WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 12
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.2 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.4 BINDING NATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.5 MERGER OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.6 INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.7 INCORPORATION OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . 43
12.8 GOOD FAITH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.9 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.10 DISPUTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.12 THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . . . . . . . . . . 44
12.13 BEST EFFORTS; FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . 44
EXHIBIT A CERTIFICATE OF MERGER
EXHIBIT B ASSET PURCHASE AGREEMENT
EXHIBIT C INVESTMENT AGREEMENT
EXHIBIT D PROSPECT MANAGEMENT AGREEMENT
EXHIBIT E MED-SEARCH LITIGATION
EXHIBIT F ISSUANCE OF SECURITIES
EXHIBIT G ACQUISITIONS
EXHIBIT H CONSULTING AGREEMENTS
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of the 10th day of June, 1996 by and among MED-SEARCH, INC., a
Delaware corporation ("Med-Search"), MED-SEARCH ACQUISITION CORPORATION, a
Delaware Corporation ("MS Acquisition Corporation"), and PROSPECT MEDICAL
SYSTEMS, INC., a Delaware corporation ("Prospect Medical Systems").
RECITALS
A. Med-Search is a provider of medical practice management and
administrative services which is currently operating in a severely distressed
financial condition;
B. Med-Search has previously engaged in discussions with Xxxxx X. Xxxxxx,
M.D. (Terner and his assigns or designees shall collectively be referred to as
"Investor") regarding the merger of Med-Search with another, more financially
viable provider of managed care services and the raising of capital for such
ventures;
C. Med-Search and Investor have entered into a binding memorandum of
intent dated as of October 13, 1995 ("Memorandum of Intent") which provides for
the merger of a wholly owned subsidiary of Med-Search with a management services
organization in a tax-free, stock for stock exchange;
D. In connection with the Memorandum of Intent and to effectuate the
proposed merger, Med-Search has caused the formation of a wholly owned
subsidiary, MS Acquisition Corporation, and Investor has (i) advanced
significant funds on behalf of Med-Search to resolve certain claims and
litigation against Med-Search and to maintain Med-Search's ongoing operations
until the closing of the merger; (ii) entered into a memorandum of intent with
Prospect Medical Group, Inc., a California professional medical corporation
("Prospect Medical Group"), pursuant to which Prospect Medical Group has caused
the formation of Prospect Medical Systems for the purpose of transferring all of
Prospect Medical Group's non-professional assets and administrative and
management functions to Prospect Medical Systems; and (iii) agreed to arrange a
$2,500,000 infusion of equity working capital at the closing of the Merger;
E. Subject to the provisions of this Agreement, immediately following (i)
approval of the transactions contemplated herein by the stockholders of
Med-Search and Prospect Medical Systems pursuant to a Joint Information
Statement and (ii) the filing of a Certificate of Amendment to Med-Search's
Certificate of Incorporation increasing the number of authorized shares of
Med-Search's $0.01 par value common stock ("Med-Search Common") from 29,000,000
to 250,000,000, Prospect Medical Systems shall execute a Certificate of Merger
(the "Certificate of Merger") in substantially the form attached hereto as
Exhibit A, which provides for the merger (the "Merger") of MS Acquisition
Corporation with and into Prospect Medical Systems at the time provided for in
Article II thereof (the "Merger Date").
F. Following the Merger, in accordance with the terms of this Agreement,
Prospect Medical Systems shall be a wholly-owned subsidiary of Med-Search.
Pursuant to the Stock Exchange Ratio set forth in Section 2.3(b) of this
Agreement, 1,600 shares of Common Stock, $.01 par value, of Prospect Medical
Systems issued and outstanding ("Prospect Medical Systems Common") will be
converted into 88,089,312 shares of Med-Search Common. Concurrent with the
Merger, Prospect Medical Group shall purchase certain assets of Suncrest Medical
Group, Inc., a California professional corporation doing business as Interstate
Care Providers ("Suncrest") pursuant to the Asset Purchase Agreement, as defined
in Section 1.1 herein.
G. The parties hereto desire to enter into this Agreement for the purpose
of setting forth certain representations, warranties and covenants made by each
to the other as an inducement to the execution and delivery of this Agreement
and the conditions precedent to the consummation of the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants herein contained, the parties hereby agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINITIONS. The terms defined in this Section 1 shall, for
all purposes of this Agreement, have the meanings herein specified, unless the
context expressly or by necessary implication otherwise requires:
(a) "Asset Purchase Agreement" shall mean that certain Agreement for
the Purchase and Sale of Assets, by and among Prospect Medical Group, Suncrest,
Xxxxxxx Xxxxx and the Estate of Xxxxxx Xxxxx, M.D. (together "Noble") and the
Noble 1992 Family Trust, a copy of which is set forth as Exhibit B ("Asset
Purchase Agreement").
(b) "Dissenting Shares" means shares of Med-Search Common or Prospect
Medical Systems Common which shall be owned by stockholders of either of them
who shall duly perfect and pursue their appraisal rights with respect to such
shares in accordance with Section 1300 of the California General Corporation
Law.
(c) "Dissenting Stockholders" means those stockholders of Med-Search
or Prospect Medical Systems who are holders of and are entitled to acquire
Dissenting Shares.
(d) "Investment Agreement" shall mean that certain agreement by and
between Med-Search and Investor, a copy of which is attached hereto as Exhibit
C, pursuant to which Investor shall be responsible for arranging an equity
infusion of $2,500,000 into Med-Search.
(e) "Joint Information Statement" shall mean the material which shall
describe the transactions contemplated by this Agreement and which shall be
delivered to and solicit the approval by the stockholders of Med-Search and
Prospect Medical Systems, to the extent required, of (i) this
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Agreement and the Merger, and any amendments or supplements thereto, all as
required by applicable law; (ii) an increase in authorized Med-Search Common to
250,000,000; (iii) a reverse stock split of Med-Search Common of 44 to one; (iv)
the subsequent reduction in the number of authorized shares of Med-Search Common
from 250,000,000 to 40,000,000; and (v) the appointment of a new Board of
Directors of Med-Search as of the Closing.
(f) "SEC" shall mean the Securities and Exchange Commission.
1.2 OTHER DEFINITIONS. In addition to the terms defined in Section 1.1,
certain other terms are defined elsewhere in this Agreement, and, whenever such
terms are used in this Agreement they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires.
ARTICLE 2
THE MERGER
2.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement and the prior filing with the Delaware Secretary of State of a
Certificate of Amendment of Certificate of Incorporation increasing the number
of authorized shares of Med-Search Common from 29,000,000 to 250,000,000, a
Certificate of Merger shall be duly prepared, executed and acknowledged by the
Surviving Corporation (as defined in Section 2.2) and thereafter delivered to
the Secretary of State of the State of Delaware, for filing, in accordance with
the Delaware General Corporation Law as soon as practicable on or after the
Closing Date (as defined in Article 8 of this Agreement). The Merger shall
become effective upon the filing of the Certificate of Merger with the Delaware
Secretary of State or such time thereafter as is provided by the Certificate of
Merger (the "Effective Time").
2.2 EFFECTS OF THE MERGER. At the Effective Time, (a) MS Acquisition
Corporation shall be merged with and into Prospect Medical Systems, which shall
be the surviving corporation (the "Surviving Corporation"), and the separate
existence of MS Acquisition Corporation shall cease, (b) the Certificate of
Incorporation of Prospect Medical Systems immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation; (c)
the Bylaws of Prospect Medical Systems shall be the Bylaws of the Surviving
Corporation; (d) the directors of the Surviving Corporation shall be as set
forth in Section 2.5 hereof; (e) the officers of the Surviving Corporation shall
be as set forth in Section 2.5 hereof; and (f) the Merger shall, from and after
the Effective Time, have all the effects provided by applicable law.
2.3 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
issued and outstanding shares of Prospect Medical Systems Common:
(a) CAPITAL STOCK OF MS ACQUISITION CORPORATION. All issued and
outstanding shares of capital stock of MS Acquisition Corporation shall continue
to be issued and shall be converted into 1,000 shares of Common Stock of the
Surviving Corporation. Each stock certificate
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of MS Acquisition Corporation evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(b) CONVERSION OF PROSPECT MEDICAL SYSTEMS COMMON. Other than
fractional shares as provided in Section 2.3(e), each share of Prospect Medical
Systems Common issued and outstanding immediately prior to the Effective Time
shall be converted, without any action on the part of the holders thereof, into
approximately 55,056 shares of Med-Search Common (hereinafter the "Stock
Exchange Ratio") such that shareholders of Prospect Medical Systems collectively
will own 88,089,312 shares of the Med-Search Common (which is intended to
represent approximately 42% of Med-Search Common immediately after the Effective
Time, including shares issued in the Med-Search Placement (defined in Section
7.1(g) herein).
(c) ADJUSTMENT OF EXCHANGE RATIO. If between the date of this
Agreement and the Effective Time, the outstanding shares of Med-Search Common or
Prospect Medical Systems Common shall have been changed or are proposed to be
changed into a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment due to due diligence or other investigation (including but not
limited to the Franklin lawsuit, described more fully in Exhibit D hereto), the
Stock Exchange Ratio shall be correspondingly adjusted, so that the existing
Med-Search Stockholders, Prospect Medical Systems Stockholders and Investor will
hold approximately 16%, 42% and 42%, respectively, of the outstanding Med-Search
Common, at the Closing Date, including shares issued in the Med-Search
Placement.
(d) DISSENTERS' RIGHTS OF STOCKHOLDERS. Any Dissenting Shares shall
receive such consideration as may be determined pursuant to Section 1300 of the
California General Corporation Law. Each of Med-Search and Prospect Medical
Systems agrees that except with the prior written consent of the Investor, or as
required under the California General Corporation Law, it will not voluntarily
make any payment with respect to, or settle or offer to settle, any such demand
for appraisal. Each Dissenting Stockholder who becomes entitled to payment of
the value of shares shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions).
(e) FRACTIONAL SHARES. No fractional shares of Med-Search Common
shall be issued, but in lieu thereof each holder of shares of Prospect Medical
Systems Common who would otherwise be entitled to receive a fraction of a share
of Med-Search Common (after aggregating all fractional shares of Med-Search
Common to be received by such holder) shall receive from Med-Search an amount of
cash (rounded up to the nearest whole cent) equal to the product of (i) the
fraction of a share to which such holder would otherwise be entitled, multiplied
by (ii) the average closing bid price of a share of Med-Search Common for the
ten (10) most recent days on which Med-Search Common has traded on the OTC
Bulletin Board ending the trading day immediately prior to the Closing Date.
2.4 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Med-Search shall
appoint American Stock Transfer & Trust to act as exchange agent (the "Exchange
Agent") in the Merger.
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(b) MED-SEARCH TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Med-Search shall make available to the Exchange Agent for exchange in
accordance with this Article 2 and the Certificate of Merger, through such
reasonable procedures as Med-Search may adopt, the shares of Med-Search Common
issuable pursuant to Section 2.3 in exchange for outstanding shares of Prospect
Medical Systems Common.
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Prospect Medical Systems Common (the "Certificates") whose
shares are being converted into Med-Search Common pursuant to Section 2.3,
instructions for use in effecting the surrender of the Certificates in exchange
for Med-Search Common. Upon surrender of a Certificate for cancellation to the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the number of shares of Med-Search Common and payments in lieu
of fractional shares to which the holder of Prospect Medical Systems Common is
entitled pursuant to Section 2.3 and the Certificate of Merger and is
represented by the Certificate so surrendered. The Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of
Prospect Medical Systems Common which is not registered in the transfer records
of Prospect Medical Systems, the appropriate number of shares of Med-Search
Common may be delivered to a transferee if the Certificate representing the
right to receive such Med-Search Common is presented to the Exchange Agent and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.4, each Certificate shall be
deemed at any time after the Effective Time to represent the right to receive
upon such surrender the number of shares of Med-Search Common as provided by
this Section 2.4 and the Delaware General Corporation Law. The Exchange Agent
shall follow the same procedure with respect to lost, stolen or mutilated
Prospect Medical Systems certificates as it follows with respect to lost, stolen
or mutilated Med-Search certificates. Unless and until any such certificates
shall be so surrendered, any dividends paid or other distributions made to
holders of record of Med-Search Common after the Effective Time shall be paid to
and retained by the Exchange Agent and paid over to such holder when such
certificate is surrendered in accordance with this Section 2.4(c).
2.5 BOARD OF DIRECTORS, OFFICERS. Upon the Effective Time:
(a) The directors of the Surviving Corporation shall be as named in
the Certificate of Merger and each shall remain a director from the Effective
Time until such director's successor shall have been elected and shall qualify,
or as otherwise provided in the By-laws of the Surviving Corporation.
(b) The officers of the Surviving Corporation shall be as named in
the Certificate of Merger and shall each hold office from the Effective Time
until such officer's successor shall have been elected and shall qualify, or as
otherwise provided in the By-laws of the Surviving Corporation.
(c) If at the Effective Time a vacancy shall exist in the Board of
Directors or in any of the offices of the Surviving Corporation, such vacancy
may thereafter be filled in the manner provided in the Bylaws of the Surviving
Corporation.
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2.6 NO FURTHER OWNERSHIP RIGHTS IN PROSPECT MEDICAL SYSTEMS COMMON. All
Prospect Medical Systems Common delivered upon the surrender for exchange of
shares of Med-Search Common in accordance with the terms hereof shall be deemed
to have been delivered in full satisfaction of all rights pertaining to such
shares of Prospect Medical Systems Common. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Prospect Medical Systems Common which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article 2.
2.7 TAX TREATMENT. The parties intend that the Merger will be a
non-taxable transaction to the holders of Prospect Medical Systems Common under
section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
2.8 SECTION 203 OF THE DGCL NOT APPLICABLE. The provisions of Section 203
of the Delaware General Corporation Law will not, prior to the termination of
this Agreement, apply to this Agreement, the Merger or the transactions
contemplated hereby and thereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PROSPECT MEDICAL SYSTEMS AND PROSPECT MEDICAL GROUP
Each of Prospect Medical Systems and Prospect Medical Group, individually,
hereby represent and warrant to Med-Search and Investor as follows; provided
however, that each such party's representations and warranties contained herein
relate only to those matters which apply to such party:
3.1 ORGANIZATION. Each of Prospect Medical Systems and Prospect Medical
Group is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and in each of the other
jurisdictions in which it owns or leases property or conducts business, except
where the failure to be so qualified will not have a material adverse effect on
the condition (financial or otherwise), net worth, assets, prospects, employees,
operations, obligations or liabilities (a "Material Adverse Effect") of Prospect
Medical Systems or Prospect Medical Group and has all requisite power and
authority to own, lease and operate its properties and to carry on its business,
as now being conducted, and possesses all regulatory and other licenses,
permits, authorizations, franchises, rights and privileges necessary for the
conduct of its business as conducted.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Prospect Medical
Systems consists of 2,500 shares of Common Stock and no shares of Preferred
Stock. At the close of business as of the Effective Time (a) 1,600 shares of
Prospect Medical Systems Common will be issued and outstanding; (b) no shares of
Preferred Stock will be outstanding; and (c) no options to purchase shares of
Prospect Medical Systems, or convertible securities will be outstanding.
All of the Prospect Medical Systems Common has been or will be issued
in compliance with applicable federal and state securities laws. All of the
outstanding shares of Prospect Medical
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Systems Common are or will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, Prospect
Medical Systems' Certificate of Incorporation or Bylaws or any agreement to
which Prospect Medical Systems is a party or is bound.
3.3 AUTHORITY. Prospect Medical Systems has as of the date hereof all
requisite corporate power and authority to enter into this Agreement and to
execute the Certificate of Merger and, subject to satisfaction of the conditions
set forth herein, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Certificate of
Merger and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Prospect Medical Systems, subject to approval by the stockholders of Prospect
Medical Systems. This Agreement has been duly executed and delivered by
Prospect Medical Systems and constitutes a valid and binding obligation of
Prospect Medical Systems enforceable in accordance with its terms. The
Certificate of Merger will be duly executed and delivered by Prospect Medical
Systems and will constitute a valid and binding obligation of Prospect Medical
Systems enforceable in accordance with its terms as of the date thereof.
Provided the conditions in Article 7 are satisfied, the execution and delivery
of this Agreement does not and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation to or loss of a
material benefit under (a) any provision of the charter documents or Bylaws of
Prospect Medical Systems or Prospect Medical Group or (b) any agreement or
instrument, permit, franchise, license, judgment or order, applicable to
Prospect Medical Systems or Prospect Medical Group or their respective
properties or assets, other than any such conflicts, violations, defaults,
terminations, cancellations or accelerations which individually and in the
aggregate would not have a Material Adverse Effect on Prospect Medical Systems
or Prospect Medical Group. Prospect Medical Systems and Prospect Medical Group
have prepared and delivered to Med-Search a full and complete list of all
necessary regulatory consents, waivers and approvals (together with any other
material consents, waivers or approvals from third parties, the "Consents") of
third parties applicable to the operations of Prospect Medical Systems that are
required to be obtained by Prospect Medical Systems in connection with the
execution and delivery of this Agreement and the Certificate of Merger by
Prospect Medical Systems and the performance of Prospect Medical Systems'
obligations hereunder or thereunder. Prior to the Closing Date, Prospect
Medical Systems or Prospect Medical Group, as applicable, will obtain all such
Consents.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality (a "Governmental Entity"), is
required by or with respect to Prospect Medical Systems in connection with the
execution and delivery of this Agreement or the Certificate of Merger by
Prospect Medical Systems or the consummation by Prospect Medical Systems of the
transactions contemplated hereby or thereby, except for (a) the filing of the
Certificate of Merger with the Delaware Secretary of State, and appropriate
documents with the relevant authorities of other states in which Prospect
Medical Systems is qualified to do business, (b) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws and the laws of any foreign
country, and (c) such other consents, approvals, orders, authorizations,
registrations, declarations and filings which if not obtained or made would not
have a Material Adverse Effect on Prospect Medical Systems.
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3.4 FINANCIAL STATEMENTS. Prior to the Closing, Prospect Medical Systems
will have furnished to Med-Search (i) Prospect Medical Group's audited statement
of operations, statement of stockholders' equity and statement of cash flows for
the two (2) fiscal years ended September 30, 1995 and Prospect Medical Group's
audited balance sheet at September 30, 1994 and September 30, 1995, and, (ii)
Prospect Medical Systems' pro forma statement of operations and balance sheet at
and for the fiscal year ended September 30, 1995. Prospect Medical Group's
balance sheet at September 30, 1995 is hereinafter referred to as the "Prospect
Medical Group Balance Sheet," and all such financial statements are hereinafter
referred to collectively as the "Prospect Medical Group Financial Statements."
The Prospect Medical Group Financial Statements will have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved, except as noted in the notes to
the Prospect Medical Group Financial Statements, and will fairly present the
financial position of Prospect Medical Group and the results of its operations
as of the date and for the periods indicated thereon. At September 30, 1995,
the Prospect Medical Group Balance Sheet (the "Prospect Medical Group Balance
Sheet Date") and as of the Closing Date, Prospect Medical Systems will have no
liabilities or obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise) not reflected on the Prospect Medical Group Balance
Sheet or the accompanying notes thereto except for liabilities incurred in the
ordinary course of business since the date of said Balance Sheet which are usual
and normal in amount. The reserves reflected in the Prospect Medical Group
Financial Statements for incurred but not yet reported claims ("IBNR") make
sufficient provision for such liabilities and have been established in
accordance with GAAP consistently applied.
3.5 BUSINESS CHANGES. Since the Prospect Medical Group Balance Sheet
Date, except as otherwise contemplated by this Agreement, each of Prospect
Medical Systems and Prospect Medical Group has conducted its business only in
the ordinary and usual course and, without limiting the generality of the
foregoing:
(a) There have been no changes in the condition (financial or
otherwise), net worth, assets, properties, employees, operations, obligations or
liabilities of Prospect Medical Systems or Prospect Medical Group which, in the
aggregate, have had or may be reasonably expected to have a materially adverse
effect on the condition, net worth, assets, properties or operations of Prospect
Medical Systems or Prospect Medical Group;
(b) Neither Prospect Medical Systems nor Prospect Medical Group has
issued, or authorized for issuance, or entered into any commitment to issue, any
equity security, bond, note or other security of Prospect Medical Systems or
Prospect Medical Group;
(c) Neither Prospect Medical Systems nor Prospect Medical Group has
incurred additional debt for borrowed money;
(d) Neither Prospect Medical Systems nor Prospect Medical Group has
incurred any obligation or liability except in the ordinary and usual course of
business;
(e) Neither Prospect Medical Systems nor Prospect Medical Group has
paid any obligation or liability, or discharged, settled or satisfied any claim,
lien or encumbrance, except for current liabilities in the ordinary and usual
course of business and prepayment of existing liabilities;
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(f) Neither Prospect Medical Systems nor Prospect Medical Group has
declared or made any dividend, payment or other distribution on or with respect
to any share of capital stock of Prospect Medical Systems or Prospect Medical
Group;
(g) Neither Prospect Medical Systems nor Prospect Medical Group has
purchased, redeemed or otherwise acquired or committed itself to acquire,
directly or indirectly, any share or shares of capital stock of Prospect Medical
Systems or Prospect Medical Group;
(h) Neither Prospect Medical Systems nor Prospect Medical Group has
mortgaged, pledged, or otherwise, voluntarily or involuntarily, encumbered any
of its assets or properties, except for liens for current taxes which are not
yet delinquent and purchase-money liens arising out of the purchase or sale of
products made in the ordinary and usual course of business;
(i) Except as set forth in Exhibit F, neither Prospect Medical
Systems nor Prospect Medical Group has purchased or agreed to purchase or
otherwise acquire any securities of any corporation, partnership, joint venture,
firm or other entity; neither Prospect Medical Systems nor Prospect Medical
Group has made any expenditure or commitment for the purchase, acquisition,
construction or improvement of a capital asset, except in the ordinary and usual
course of business and in any event not in excess of $25,000 for any single item
or $100,000 in the aggregate;
(j) Neither Prospect Medical Systems nor Prospect Medical Group has
entered into any transaction or contract or made any commitment to do the same,
except in the ordinary and usual course of business;
(k) Neither Prospect Medical Systems nor Prospect Medical Group has
sold, assigned, transferred or conveyed, or committed itself to sell, assign,
transfer or convey, any Proprietary Rights (as defined in Section 3.16);
(l) Neither Prospect Medical Systems nor Prospect Medical Group has
adopted or amended any bonus, incentive, profit-sharing, stock option, stock
purchase, pension, retirement, deferred compensation, severance life insurance,
medical or other benefit plan, agreement, trust, fund or arrangement for the
benefit of employees of any kind whatsoever, nor entered into or amended any
agreement relating to employment, services as an independent contractor or
consultant, or severance or termination pay, nor agreed to do any of the
foregoing;
(m) Neither Prospect Medical Systems nor Prospect Medical Group has
effected or agreed to effect any change in its directors, officers or key
employees;
(n) Neither Prospect Medical Systems nor Prospect Medical Group has
effected or committed itself to effect any amendment or modification in its
charter documents or Bylaws, except as contemplated in this Agreement or the
Certificate of Merger.
3.6 CONDUCT OF BUSINESS. Between the date of the execution of this
Agreement and the Effective Time, Prospect Medical Systems and Prospect Medical
Group shall (i) carry on their respective operations in substantially the same
manner as has previously been done, (ii) use best efforts to maintain and
preserve their businesses and operations in good condition and repair, and to
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prevent the imposition of any additional Liens (as defined below) on the Assets,
(iii) use best efforts to preserve their respective businesses and operations
and the relationships with all patients and payors, and (iv) not liquidate or
dissolve, take any steps to do same, or inform any third person or entity that
they have done or intend to do the same.
3.7 PROPERTIES. The Prospect Medical Group Balance Sheet reflects all of
the real and personal property used by Prospect Medical Systems and Prospect
Medical Group in their business or otherwise held by Prospect Medical Systems
and Prospect Medical Group, except (a) for property acquired or disposed of in
the ordinary and usual course of the business of Prospect Medical Systems and
Prospect Medical Group since the date of such balance sheet and (b) personal
property not required under GAAP to be reflected thereon. Prospect Medical
Systems and Prospect Medical Group have good and marketable title to all assets
and properties reflected on the Prospect Medical Group Balance Sheet and
thereafter acquired, free and clear of any imperfections of title, lien, claim,
encumbrance, restriction, charge or equity of any nature whatsoever
(collectively, "Liens"), except for the lien of current taxes not yet delinquent
and except for Liens which, individually or in the aggregate, are not material
to the encumbered property. All of the fixed assets and properties listed on
the Prospect Medical Group Balance Sheet or thereafter acquired are in
satisfactory condition and repair for the requirements of the business as
presently conducted by Prospect Medical Systems and Prospect Medical Group.
3.8 REAL PROPERTY.
(a) Prospect Medical Systems and Prospect Medical Group have provided
Med-Search with a full and complete list of all real property owned and leased
by Prospect Medical Systems or Prospect Medical Group or under option to
purchase by Prospect Medical Systems or Prospect Medical Group. All such
property leased by Prospect Medical Systems or Prospect Medical Group is held
under valid, existing and enforceable leases. Neither real property owned or
leased by Prospect Medical Systems or Prospect Medical Group nor the operations
of Prospect Medical Systems or Prospect Medical Group thereon, violate in any
material respect any applicable building code, zoning requirement or
classification, or pollution control ordinance or statute relating to the
property or to such operations, and such non-violation is not dependent, in any
instance, on so-called non-conforming use exemptions. No notice from any
governmental or public safety authority of any uncorrected condition, unpaid
assessment charge or fine relating to the medical facilities or the conduct of
business thereon or notice of any pending or contemplated condemnation or change
in zoning which would have a Material Adverse Effect on Prospect Medical Systems
or Prospect Medical Group has been received by Prospect Medical Systems or
Prospect Medical Group.
(b) There are no Hazardous Substances in, under or about the air,
soil, sediment, surface water or groundwater on, under or around any properties
at any time owned, leased or occupied by Prospect Medical Systems or Prospect
Medical Group. Neither Prospect Medical Systems nor Prospect Medical Group have
disposed of any Hazardous Substances on or about such property. Neither
Prospect Medical Systems nor Prospect Medical Group have disposed of any
materials at any site being investigated or remediated for contamination or
possible contamination of the environment. "Hazardous Substances" shall mean
any substance regulated or prohibited by any law or designated by any
governmental agency to be hazardous, toxic, radioactive, regulated medical waste
or otherwise a danger to health or the environment.
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(c) Prospect Medical Systems and Prospect Medical Group have
conducted their business in accordance with all applicable laws, regulations,
orders and other requirements of governmental authorities relating to Hazardous
Substances and the use, storage, treatment, disposal, transport, generation,
release and exposure of others to Hazardous Substances (collectively,
"Environmental Regulation"). Neither Prospect Medical Systems nor Prospect
Medical Group has received any notice of any investigation, claim or proceeding
against Prospect Medical Systems or Prospect Medical Group relating to Hazardous
Substances and neither Prospect Medical Systems nor Prospect Medical Group is
aware of any fact or circumstance which could involve Prospect Medical Systems
or Prospect Medical Group in any environmental litigation, proceeding,
investigation or claim or impose any environmental liability upon Prospect
Medical Systems or Prospect Medical Group (collectively, "Environmental
Litigation"). Between the date hereof and Closing, there shall not have
occurred any failure by Prospect Medical Systems or Prospect Medical Group to
comply with any applicable Environmental Regulation and there shall not have
occurred any Environmental Litigation that shall have a Material Adverse Effect
on Prospect Medical Systems or Prospect Medical Group.
3.9 ACCOUNTS RECEIVABLE. All of the accounts receivable of Prospect
Medical Systems and Prospect Medical Group shown on the Prospect Medical Group
Balance Sheet or thereafter arose in the ordinary and usual course of its
business. The values at which accounts receivable are carried effect the
accounts receivable valuation policy of Prospect Medical Systems and Prospect
Medical Group which are consistent with past practice and in accordance with
GAAP applied on a consistent basis.
3.10 TAXES. Prospect Medical Systems and Prospect Medical Group have duly
filed with the appropriate United States, state, local and foreign governmental
agencies all tax returns and reports required to be filed (subject to permitted
extensions applicable to such filings), which returns are accurate and complete,
and have paid or accrued in full all taxes, duties, charges, withholding
obligations and other governmental liabilities as well as any interest,
penalties, assessments or deficiencies, if any, due to, or claimed to be due by,
any governmental authority. (All such items are collectively referred to herein
as "Taxes"). The Prospect Medical Group Balance Sheet fully accrues (and the
balance sheets subsequent to the date of the Prospect Medical Group Balance
Sheet and provided to Med-Search and the Investor prior to the Closing Date will
fully accrue) all current and deferred Taxes. Neither Prospect Medical Systems
nor Prospect Medical Group is a party to any pending action or proceeding, nor,
to the knowledge of Prospect Medical Systems or Prospect Medical Group, is any
such action or proceeding threatened by any governmental authority for the
assessment or collection of Taxes.
3.11 COMPLIANCE WITH LAW. All licenses, franchises, permits, consents,
certificates and other evidences of authority ("Permits") of Prospect Medical
Systems and Prospect Medical Group which are necessary to the conduct of
Prospect Medical Systems and Prospect Medical Group's businesses are in full
force and effect and neither Prospect Medical Systems nor Prospect Medical Group
is in violation of any Permit in any material respect. Prospect Medical Group
has made available to Med-Search and Investor all material filings made to, and
all inspection or compliance survey reports received from, the California
Department of Corporations, Department of Health Services and the Joint
Commission on Accreditation of Health Care Organizations ("JCAHO") for the last
two years and will make available to Med-Search or Investor all other Permits as
requested
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by Med-Search or Investor. Each of such filings was in material compliance with
all applicable laws and regulations; none of the filings contained an untrue
statement of a material fact or omitted to state a material fact. Except for
possible violations which would not have a Material Adverse Effect on Prospect
Medical Systems or Prospect Medical Group, the business of Prospect Medical
Systems and Prospect Medical Group has been conducted in accordance with all
applicable laws, regulations, orders and other requirements of governmental
authorities.
3.12 LICENSURE AND REIMBURSEMENT. As of the Effective Time:
(a) Each of Prospect Medical Group's employee-physicians is duly
licensed to practice his or her profession in the State of California without
restriction; and Prospect Medical Systems and Prospect Medical Group have all
licenses, permits, approvals and authorizations necessary for the conduct of
their business as presently conducted.
(b) Prospect Medical Group is participating in the Medicare and
Medicaid programs and in any other applicable governmental health care payment
programs, and has been and will continue to be authorized to receive
reimbursement from such programs for fees and charges incurred by eligible
patients for their services. Neither Prospect Medical Systems nor Prospect
Medical Group has received any notice on or before the Effective Time that any
such license, participation or authorization has been or is threatened to be
terminated or, in any material respect, restricted, and neither Prospect Medical
Systems nor Prospect Medical Group knows of any basis for any such termination
or restriction. As of the Effective Time there is no federal or state
investigation pending or, to the best of Prospect Medical Systems' and Prospect
Medical Group's knowledge, contemplated, that will have an impact upon Prospect
Medical Group's reimbursement status or Prospect Medical Group's ability to
operate a medical practice in California. Neither Prospect Medical Systems nor
Prospect Medical Group has received any notice of action on or before the
Effective Time nor, to the best of Prospect Medical Systems' and Prospect
Medical Group's knowledge, is there any threatened or likely action by the
Medicare or Medicaid program or any carrier, to recoup or challenge any Medicare
or Medicaid reimbursement that Prospect Medical Group has received or for which
there currently is a claim pending for services rendered at or in connection
with Prospect Medical Group.
3.13 FRAUD AND ABUSE. Each of Prospect Medical System and Prospect Medical
Group, their officers, employees, agents, independent contractors and medical
staff members have not engaged in any activities which are prohibited under
federal Medicare and Medicaid statutes, 42 U.S.C. Section 1320a-7b, or the
regulations promulgated pursuant to such statutes or related state or local
statutes or regulations or which are prohibited by rules of professional conduct
or which otherwise could constitute fraud, including but not limited to the
following: (i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (ii) knowingly and willingly making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment, (iii) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its behalf or on behalf of another, with intent to
secure such benefit or payment fraudulently, (iv) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay such remuneration (A) in return for referring an individual to a
person for the
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furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (B) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by Medicare or Medicaid.
3.14 LITIGATION. There is no claim, dispute, action, proceeding, suit,
appeal or investigation, at law or in equity, pending against Prospect Medical
Systems or Prospect Medical Group, or involving any of their respective assets
or properties, before any court, agency, governmental department or agency,
commission, authority, arbitration panel or other tribunal (other than those, if
any, with respect to which service of process or similar notice has not yet been
made on Prospect Medical Systems or Prospect Medical Group), and, to the
knowledge of Prospect Medical Systems or Prospect Medical Group, none have been
threatened which would have a Material Adverse Effect on Prospect Medical
Systems or Prospect Medical Group. Neither Prospect Medical Systems nor
Prospect Medical Group is subject to any order, writ, injunction or decree of
any court, agency, authority, arbitration panel or other tribunal, nor is it in
default with respect to any notice, order, writ, injunction or decree.
3.15 CONTRACTS. Prospect Medical Systems and Prospect Medical Group
have made available to Med-Search and Investor each executory contract and
agreement in the following categories to which Prospect Medical Systems or
Prospect Medical Group is a party, or by which either is bound in any
respect: (a) agreements for the purchase, sale, lease or other disposition of
equipment, goods, materials, research and development, supplies, studies or
capital assets, or for the performance of services, which agreements are in
one or more of the following categories: (i) outside the ordinary course of
business, (ii) involving payments by Prospect Medical Systems in excess of
$50,000; (b) contracts or agreements for the joint performance of work or
services, and all other joint venture agreements; (c) management or
employment contracts, consulting contracts, collective bargaining contracts,
termination and severance agreements; (d) notes, mortgages, deeds of trust,
loan agreements, security agreements, guarantees, debentures, indentures,
credit agreements and other evidences of indebtedness; (e) stock option,
stock purchase, warrant, repurchase or other contracts or agreements relating
to any share of capital stock of Prospect Medical Systems or Prospect Medical
Group; (f) contracts or agreements with agents, brokers, solicitors,
consignees, sale representatives or distributors involving terms or
commissions outside the ordinary course of business; (g) contracts or
agreements with any director, officer, employee, consultant or stockholder;
(h) powers of attorney or similar authorizations granted by Prospect Medical
Systems or Prospect Medical Group to third parties; (i) material licenses,
sublicenses, royalty agreements and other contracts or agreements to which
Prospect Medical Systems or Prospect Medical Group is a party, or otherwise
subject, relating to Proprietary Rights; (j) all contracts with third party
payors, including but not limited to, prepaid health plans, preferred
provider organizations and exclusive provider organizations; and (k) other
material contracts, including material contracts relating to Providers (as
defined in Section 3.23 hereof), Medi-Cal, Medicare, and the marketing of
Prospect Medical Systems' business. As of the Closing Date, Prospect Medical
Systems and Prospect Medical Group will have executed a Management Agreement,
including exhibits thereto, in substantially the form attached as Exhibit D
(the "Prospect Management Agreement").
The contracts referred to herein remain in full force and effect in
accordance with their terms as of the Effective Time. Neither Prospect Medical
Systems, Prospect Medical Group nor any
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other party to any such contract or agreement (including, but not limited to,
any landlord), is in default, or alleged to be in default thereunder, and there
exists no condition or event which, with the giving of notice or the lapse of
time or otherwise, would constitute such a default by Prospect Medical Systems
or Prospect Medical Group or by any other party to any such contracts or
agreements. All of the contracts are valid and enforceable by Prospect Medical
Systems or Prospect Medical Group, subject to laws relating to bankruptcy,
insolvency and equitable orders or decrees.
Neither Prospect Medical Systems nor Prospect Medical Group has
entered into any contract or agreement containing covenants limiting the right
of Prospect Medical Systems or Prospect Medical Group to compete in any business
or with any person. As used in this Agreement, the terms "contract" and
"agreement" include every contract, agreement, commitment, understanding and
promise, whether written or oral.
3.16 PROPRIETARY RIGHTS.
(a) Each of Prospect Medical Systems and Prospect Medical Group owns
or possesses licenses or other rights to use all computer software, software
programs, patents, patent applications, trademarks, trademark applications,
trade secrets, service marks, trade names, copyrights, inventions, customer
lists, proprietary information, or other rights with respect thereto
(collectively referred to as "Proprietary Rights"), used in the business of
Prospect Medical Systems and Prospect Medical Group, and the same are sufficient
to conduct the business of Prospect Medical Systems and Prospect Medical Group
as it has been and is now being conducted.
(b) The operations of Prospect Medical Systems or Prospect Medical
Group do not conflict with or infringe, and no one has asserted to Prospect
Medical Systems or Prospect Medical Group that such operations conflict with or
infringe, any Proprietary Rights of any third party. There are no claims,
disputes, actions, proceedings or suits pending against Prospect Medical Systems
or Prospect Medical Group with respect to any Proprietary Rights (other than
those with respect to which service of process or similar notice may not yet
have been made on Prospect Medical Systems or Prospect Medical Group), and, to
the knowledge of Prospect Medical Systems and Prospect Medical Group, none has
been threatened against Prospect Medical Systems or Prospect Medical Group. To
the knowledge of Prospect Medical Systems and Prospect Medical Group, there are
no facts or alleged facts which would reasonably serve as a basis for any claim
that Prospect Medical Systems or Prospect Medical Group does not have the right
to use, free of any rights or claims of others, all Proprietary Rights in the
conduct of the business of Prospect Medical Systems and Prospect Medical Group
as it has been and is now being conducted.
3.17 INSURANCE. Prospect Medical Systems and Prospect Medical Group have
provided Med-Search and Investor with a complete list of all policies of
insurance to which Prospect Medical Systems or Prospect Medical Group is a party
or is a beneficiary or named insured and all claims which have been made to the
insurers. Prospect Medical Systems and Prospect Medical Group have in full
force and effect with all premiums due thereon paid, the policies of insurance
set forth therein. Prospect Medical Systems believes that the insurable
properties of Prospect Medical Systems and Prospect Medical Group are insured in
amounts and coverages and against risks and losses which are adequate and
usually insured against by persons providing or arranging for the provision of
health care services or holding or operating similar properties in similar
businesses. There were no claims
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in excess of policy limits asserted under any of the insurance policies of
Prospect Medical Systems and Prospect Medical Group in respect of all motor
vehicle, general liability, fidelity bonds, professional liability, reinsurance
and workers' compensation, and medical claims. To the knowledge of Prospect
Medical Systems and Prospect Medical Group, the insurers have no right to
terminate or reduce such coverage before the end of applicable policy periods
and Prospect Medical Systems and Prospect Medical Group have complied with their
obligations under such policies. No claim has been made against Prospect
Medical Systems or Prospect Medical Group which is not covered by a policy of
insurance, in whole or in part, or as to which an insurer has denied coverage or
defended under a reservation of rights.
3.18 CERTAIN ADVANCES. There are no receivables of Prospect Medical
Systems owing from directors, officers, employees, consultants or stockholders
of Prospect Medical Systems, or owing by any Affiliate of any director or
officer of Prospect Medical Systems, except for advances in the ordinary and
usual course of business to officers and employees for reimbursable business
expenses.
3.19 RELATED PARTIES. No officer or director of Prospect Medical Systems
or Prospect Medical Group, or any such person, has, either directly or
indirectly, (a) an interest in any corporation, partnership, firm or other
person or entity which furnishes or sells services or products which are similar
to those furnished or sold by Prospect Medical Systems or Prospect Medical
Group, or (b) a beneficial interest in any contract or agreement to which
Prospect Medical Systems or Prospect Medical Group is a party or by which
Prospect Medical Systems or Prospect Medical Group may be bound. For purposes
of this Section 3.19, there shall be disregarded any interest which arose solely
from the ownership of less than a five percent (5%) equity interest in a
corporation whose stock is regularly traded on any national securities exchange
or in the over-the-counter market.
3.20 UNDERLYING DOCUMENTS. Copies of any underlying documents listed or
described as having been disclosed to Med-Search pursuant to this Agreement have
been furnished to Med-Search and Investor. All such documents furnished to
Med-Search are true and correct copies, and there are no amendments or
modifications thereto, that have not been disclosed to Med-Search.
3.21 EMPLOYEES AND UNION ACTIVITIES. Prospect Medical Systems and Prospect
Medical Group have complied with all applicable state and federal laws and
regulations related to employees and employment practices, except where the
failure to comply would have no Material Adverse Effect on Prospect Medical
Systems and Prospect Medical Group. The employee relations of Prospect Medical
Systems and Prospect Medical Group are good and there is no pending or
threatened labor dispute.
3.22 EMPLOYEE BENEFIT PLANS.
(a) Neither Prospect Medical Systems nor any Prospect ERISA Affiliate
(as defined herein), maintains, is a party to, contributes to, or is obligated
to contribute to, and neither Prospect Medical Systems' nor any Prospect ERISA
Affiliate's employees or former employees and their dependents or survivors
receive benefits under, any of the following (whether or not set forth in a
written document):
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(i) Any employee pension benefit plan, as defined in section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including (without limitation) any multiemployer plan, as defined in
section 3(37) of ERISA;
(ii) Any employee welfare benefit plan, as defined in section
3(l) of ERISA,
(iii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
debenture, supplemental pension, profit-sharing royalty pool, commission or
similar plan or arrangement;
(iv) Any plan, program, agreement policy, commitment or other
arrangement relating to severance or termination pay, whether or not published
or generally known;
(v) Any plan, program, agreement, policy, commitment or other
arrangement relating to the provision of any benefit described in section 3(l)
of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the Consolidated Omnibus Budget
Reconciliation Act of 1984 ("COBRA");
(vi) Any employment consulting or termination agreement; or
(vii) Any other plan, program, agreement procedure, policy,
commitment understanding or other arrangement relating to employee benefits,
executive compensation, fringe benefits, severance pay, terms of employment or
services as an independent contractor, whether foreign or domestic.
"Prospect ERISA Affiliate" means any entity that, together with
Prospect Medical Systems, is treated as a single employer under section 414(b),
414(c), 414(m) or 414(o) of the Code.
(b) Neither Prospect Medical Systems nor any Prospect ERISA Affiliate
has, since January 1, 1993 terminated, suspended, discontinued contributions to
or withdrawn from any employee pension benefit plan, as defined in section 3(2)
of ERISA, including (without limitation) any multiemployer plan, as defined in
section 3(37) of ERISA.
(c) No payment made to any employee, officer, director or independent
contractor of Prospect Medical Systems or Prospect Medical Group (the
"Recipient") pursuant to any employment contract, severance agreement or other
arrangement (the "Golden Parachute Payment") will be nondeductible by Prospect
Medical Systems or Prospect Medical Group because of the application of sections
28OG and 4999 of the Code to the Golden Parachute Payment, nor will Prospect
Medical Systems or Prospect Medical Group be required to compensate any
Recipient because of the imposition of an excise tax (including any interest or
penalties related thereto) on the Recipient by reason of sections 28OG and 4999
of the Code.
(d) Neither Prospect Medical Systems nor any Prospect ERISA Affiliate
has any unfunded liability relating to retiree life and medical benefits for
Prospect Medical Systems' current or former employees and their dependents.
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3.23 ACTIVITIES OF PROVIDERS AND ENROLLEE GROUPS. Prospect Medical Systems
and Prospect Medical Group have no knowledge:
(a) that any of Prospect Medical Systems' or Prospect Medical Group's
independent practice associations ("IPAs"), physician groups, physicians,
pharmacies, laboratories, home health care agencies, nursing facilities, mental
health providers, therapists and other allied health professionals and health
care institutions (collectively, "Providers") are organized or attempting to
organize any entity (whether or not incorporated) for the purpose of bargaining
or otherwise dealing with Prospect Medical Group on a collective basis (except
with respect to individual providers who have formed professional corporations
or partnerships for the purpose of providing medical services or except with
respect to the IPAs and medical groups which currently contract with Prospect
Medical Group);
(b) that any Providers have expressed an intent (whether or not
legally binding) to terminate or not to renew as Providers to Prospect Medical
Group;
(c) that IPAs, other medical groups, individual doctors which
contract with Prospect Medical Group and which serve individually or in the
aggregate more than 200 enrollees have expressed an intent (whether or not
legally binding) to terminate or not to renew their respective contracts with
Prospect Medical Group; or
(d) of any circumstances likely to result in disenrollment of
enrollees, the loss of which individually and in the aggregate would have a
Material Adverse Effect on Prospect Medical Systems and Prospect Medical Group.
3.24 INSPECTIONS. Prospect Medical Systems and Prospect Medical Group have
accurately and fully described (i) all inspections of their businesses or
operations by any governmental agency or any consultant at any time during the
previous five (5) years; (ii) all matters which were noted by any and all such
governmental agency or consultant as requiring correction or modifications which
were requested or recommended; and (iii) the present status of each such noted
matter.
3.25 SECTION 203 OF THE DGCL NOT APPLICABLE. The provisions of Section 203
of the Delaware General Corporation Law relating to business combinations with
interested stockholders, will not, prior to the termination of this Agreement,
apply to this Agreement, the Stock Option Agreement, the Merger or the
transactions contemplated hereby and thereby.
3.26 REPRESENTED BY COUNSEL. Prospect Medical Systems and Prospect Medical
Group have been represented at all times during the negotiations of this
Agreement and the transactions contemplated herein solely by the Law Offices of
Xxxxxx & Parks.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MED-SEARCH,
MS ACQUISITION CORPORATION AND SUNCREST
Each of Med-Search, MS Acquisition Corporation and Suncrest, individually,
hereby represent and warrant to Prospect Medical Systems and Investor as
follows; provided however, that each such party's representations and warranties
contained herein relate only to those matters which apply to such party:
4.1 ORGANIZATION. Each of Med-Search, MS Acquisition Corporation and
Suncrest is a corporation duly organized and validly existing. As of the date
of Closing, each of Med-Search, MS Acquisition Corporation and Suncrest will be
duly qualified to do business and will be in good standing in its state of
incorporation and in each of the other jurisdictions in which it owns or leases
property or conducts business, except where the failure to be so qualified would
not have a Material Adverse Effect on such entity. Each of Med-Search, MS
Acquisition Corporation and Suncrest has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and possesses all licenses, franchises, rights and privileges
necessary to the conduct of its respective business as conducted.
4.2 MS ACQUISITION CORPORATION CAPITAL STRUCTURE. The authorized capital
stock of MS Acquisition Corporation consists of 2,500 shares of Common Stock,
$.01 par value ("MS Acquisition Corporation Common"). Upon the execution of
this Agreement, 2,500 shares of MS Acquisition Corporation Common were validly
issued and outstanding and were held by Med-Search of record and beneficially.
No options, preferred stock or convertible securities are outstanding.
4.3 AUTHORITY. Each of Med-Search, MS Acquisition Corporation, and
Suncrest has all requisite corporate power and authority to enter into this
Agreement and, subject to satisfaction of the conditions set forth herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Med-Search, MS Acquisition Corporation and Suncrest, subject to approval by the
stockholders of Med-Search. This Agreement has been duly executed and delivered
by Med-Search, MS Acquisition Corporation and Suncrest and constitutes a valid
and binding obligation of each of Med-Search, MS Acquisition Corporation and
Suncrest, enforceable in accordance with its terms. Provided the conditions set
forth in Article 7 are satisfied, the execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit under (a)
any provision of the Certificate of Incorporation or Bylaws of Med-Search, MS
Acquisition Corporation, or Suncrest or (b) any agreement or instrument, permit,
judgment, order, statute, law, ordinance, rule or regulation applicable to
Med-Search, MS Acquisition Corporation, or Suncrest or their respective
properties or assets, other than any such conflicts, violations, defaults,
terminations, cancellations or accelerations which individually or in the
aggregate would not have a Material Adverse Effect on Med-Search, MS Acquisition
Corporation or Suncrest. Med-Search and Prospect Medical Group have prepared
and delivered to Med-Search a full and complete list of all necessary regulatory
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consents, waivers and approvals (together with any other material consents,
waivers or approvals from third parties, the "Consents") of third parties
applicable to the operations of Med-Search that are required to be obtained by
Med-Search in connection with the execution and delivery of this Agreement and
the Certificate of Merger by Med-Search and the performance of Med-Search'
obligations hereunder or thereunder. Prior to the Closing Date, Med-Search or
Prospect Medical Group, as applicable, will obtain all such Consents.
Med-Search has all requisite corporate power and authority to execute
the Certificate of Amendment to Certificate of Incorporation increasing the
authorized number of shares of Med-Search Common from 29,000,000 to 250,000,000.
MS Acquisition Corporation has all requisite corporate power and authority to
execute the Certificate of Merger. The execution and delivery of the
Certificate of Amendment to Certificate of Incorporation increasing the
authorized number of shares of Med-Search Common from 29,000,000 to 250,000,000
and the Certificate of Merger by Med-Search and MS Acquisition Corporation,
respectively, have been duly authorized by all necessary corporate action on the
part of Med-Search and MS Acquisition Corporation, subject to approval by the
stockholders of Med-Search. The Certificate of Amendment to Certificate of
Incorporation increasing the authorized number of shares of Med-Search Common
from 29,000,000 to 250,000,000 and the Certificate of Merger will be duly
executed and delivered by Med-Search and MS Acquisition Corporation and will
constitute valid and binding obligations of Med-Search and MS Acquisition
Corporation, respectively.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Med-Search, MS Acquisition Corporation, or Suncrest in connection
with the execution and delivery of this Agreement by Med-Search, MS Acquisition
Corporation and Suncrest or the consummation by Med-Search, MS Acquisition
Corporation and Suncrest of the transactions contemplated hereby, except for (i)
the filing of the Certificate of Merger and the Certificate of Amendment of
Certificate of Incorporation of Med-Search, and related certificates with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which Med-Search or MS Acquisition Corporation is
qualified to do business, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the law of any foreign country, and (iii) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not have a Material Adverse Effect on Med-Search or MS
Acquisition Corporation.
4.4 CAPITAL STRUCTURE.
(a) The authorized capital stock of Med-Search consists of 29,000,000
shares of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock.
28,709,733 shares of Common Stock are issued and outstanding, and no shares of
Preferred Stock, options or convertible securities are outstanding. In
addition, due to certain due diligence and other issues, the board of directors
of Med-Search has authorized the reserve of 4,848,100 shares of Med-Search
Common, which have been added to the total outstanding shares in calculating the
Exchange Ratio, which reserve is subject to further adjustment as provided in
Section 2.3(c).
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Since May 1, 1993, all of the outstanding shares of Med-Search
Common have been duly authorized, validly issued, fully paid and nonassessable,
issued in compliance with applicable state and federal securities laws and not
subject to preemptive rights created by statute, Med-Search's Certificate of
Incorporation or Bylaws or any agreement to which Med-Search is a party or is
bound. The shares of Med-Search Common when issued and delivered to the
stockholders of Prospect Medical Systems in accordance with this Agreement will
be duly authorized, validly issued, fully paid and nonassessable, and issued in
compliance with applicable state and federal securities laws.
(b) The authorized capital stock of Suncrest consists of 75,000
shares of common stock, of which 500 are outstanding and owned by Noble as
representative of the estate of Xxxxxx X. Xxxxx, M.D.
4.5 FINANCIAL STATEMENTS. Med-Search, together with Suncrest, has
furnished to Prospect Medical Systems and Investor, or will furnish prior to the
Closing, (i) their respective audited statement of operations, statement of
stockholders' equity and statement of cash flows for the combined two fiscal
years ended September 30, 1994 and 1995, and Med-Search's audited consolidated
balance sheet at September 30, 1995, and (ii) Med-Search's pro forma statement
of operations and balance sheet at and for the fiscal year ended September
30,1995. The balance sheets of Med-Search and Suncrest at September 30, 1995
are hereinafter referred to as the "Med-Search Balance Sheet" and all such
financial statements are hereinafter referred to collectively as the "Med-Search
Financial Statements." The Med-Search Financial Statements have been, or will
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved, and fairly present, or will present the combined financial
position of Med-Search and Suncrest and the results of their combined operations
as of the date and for the periods indicated thereon. At the date of the
Med-Search Balance Sheet (the "Med-Search Balance Sheet Date") and as of the
Closing Date, neither Med-Search nor Suncrest had or will have any liabilities
or obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise) not reflected on the Med-Search Balance Sheet or the accompanying
notes thereto except for liabilities incurred in the ordinary course of business
since the date of said balance sheet which are usual and normal in amount. The
reserves reflected in the Med-Search Financial Statements for incurred but not
yet reported claims ("IBNR") make sufficient provision for such liabilities and
have been established in accordance with GAAP consistently applied.
4.6 CONDUCT OF BUSINESS. Between the date of the execution of this
Agreement and the Effective Time, Med-Search and Suncrest shall (i) carry on
their respective operations in substantially the same manner as has previously
been done, (ii) use best efforts to maintain and preserve their businesses and
operations in good condition and repair, and to prevent the imposition of any
additional Liens (as defined herein) on the Assets, (iii) use best efforts to
preserve their respective businesses and operations and the relationships with
all patients and payors, and (iv) not liquidate or dissolve, take any steps to
do same, or inform any third person or entity that they have done or intend to
do the same.
4.7 BUSINESS CHANGES. Since the Med-Search Balance Sheet Date, except as
otherwise contemplated by this Agreement, MS Acquisition Corporation and
Suncrest have conducted their business only in the ordinary and usual course
and, without limiting the generality of the foregoing:
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(a) Except for the transfer of Suncrest's contract with FHP
HealthPlan, there have been no changes in the condition (financial or
otherwise), net worth, assets, properties, employees, operations, obligations or
liabilities of Med-Search, MS Acquisition Corporation or Suncrest or which, in
the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the condition, net worth, assets, properties or operations of
Med-Search, MS Acquisition Corporation or Suncrest.
(b) Except for the shares of Med-Search Common which are proposed to
be issued to Xxxx X. Xxxxxx, M.D., neither Med-Search, MS Acquisition
Corporation nor Suncrest has issued, or authorized for issuance, or entered into
any commitment to issue, any equity security, bond, note or other security of
Med-Search, MS Acquisition Corporation or Suncrest.
(c) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
incurred additional debt for borrowed money.
(d) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
incurred any obligation or liability except in the ordinary and usual course of
business.
(e) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
paid any obligation or liability, or discharged, settled or satisfied any claim,
lien or encumbrance, except for current liabilities in the ordinary and usual
course of business and prepayment of existing liabilities.
(f) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
declared or made any dividend, payment or other distribution on or with respect
to any share of capital stock of Med-Search, MS Acquisition Corporation or
Suncrest.
(g) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
purchased, redeemed or otherwise acquired or committed itself to acquire,
directly or indirectly, any share or shares of capital stock of Med-Search, MS
Acquisition Corporation or Suncrest.
(h) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
mortgaged, pledged, or otherwise, voluntarily or involuntarily, encumbered any
of its assets or properties, except for liens for current taxes which are not
yet delinquent and purchase-money liens arising out of the purchase or sale of
products made in the ordinary and usual course of business.
(i) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
purchased or agreed to purchase or otherwise acquire any securities of any
corporation, partnership, joint venture, firm or other entity; neither
Med-Search, MS Acquisition Corporation nor Suncrest has made any expenditure or
commitment for the purchase, acquisition, construction or improvement of a
capital asset, except in the ordinary and usual course of business and in any
event not in excess of $15,000 for any single item or $50,000 in the aggregate.
(j) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
entered into any transaction or contract or made any commitment to do the same,
except in the ordinary and usual course of business.
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(k) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
sold, assigned, transferred or conveyed, or committed itself to sell, assign,
transfer or convey, any Proprietary Rights (as defined in Section 3.16).
(l) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
adopted or amended any bonus, incentive, profit-sharing, stock option, stock
purchase, pension, retirement, deferred compensation, severance, life insurance,
medical or other benefit plan, agreement, trust, fund or arrangement for the
benefit of employees of any kind whatsoever, nor entered into or amended any
agreement relating to employment, services as an independent contractor or
consultant, or severance or termination pay, nor agreed to do any of the
foregoing.
(m) Except as contemplated in Section 6.12 herein, neither
Med-Search, MS Acquisition Corporation nor Suncrest has effected or agreed to
effect any change in its directors, officers or key employees.
(n) Neither Med-Search, MS Acquisition Corporation nor Suncrest has
effected or committed itself to effect any amendment or modification in its
charter documents or Bylaws, except as contemplated in this Agreement, the
Certificate of Amendment of Certificate of Incorporation or the Certificate of
Merger.
4.8 PROPERTIES. The Med-Search Balance Sheet reflects all of the personal
and real property used in its business or otherwise held by Med-Search and
Suncrest, except (a) for property acquired or disposed of in the ordinary and
usual course of the business of Med-Search and Suncrest since the date of such
balance sheet and (b) personal property not required under GAAP to be reflected
thereon. Med-Search and Suncrest each have good and marketable title to all
assets and properties reflected on the Med-Search Balance Sheet and thereafter
acquired, free and clear of Liens, except for the lien of current taxes not yet
delinquent and except for Liens which, individually or in the aggregate, are not
material to the encumbered property. All of the fixed assets and properties
listed on the Med-Search Balance Sheet or thereafter acquired are in
satisfactory condition and repair for the requirements of the business as
presently conducted by Med-Search and Suncrest.
4.9 REAL PROPERTY.
(a) Med-Search and Suncrest each have provided to Prospect Medical
Systems and Investor full and complete list of all real property owned and
leased by them or under option to purchase by Med-Search or Suncrest. All such
property leased by Med-Search or Suncrest is held under valid, existing and
enforceable leases. Neither real property owned or leased by Med-Search or
Suncrest nor the operations of Med-Search or Suncrest thereon, violate in any
material respect any applicable building code, zoning requirement or
classification, or pollution control ordinance or statute relating to the
property or to such operations, and such non-violation is not dependent, in any
instance, on so-called non-conforming use exemptions. No notice from any
governmental or public safety authority of any uncorrected condition, unpaid
assessment charge or fine relating to the conduct of business thereon or notice
of any pending or contemplated condemnation or change in zoning which would have
a Material Adverse Effect on Med-Search, MS Acquisition Corporation or Suncrest
has been received by any of them.
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(b) To the knowledge of Med-Search, there are no Hazardous Substances
in, under or about the air, soil, sediment, surface water of groundwater on,
under or around any properties at any time owned, leased or occupied by
Med-Search or Suncrest. Neither Med-Search nor Suncrest has disposed of any
Hazardous Substances on or about such property. Neither Med-Search nor Suncrest
has disposed of any materials at any site being investigated or remediated for
contamination or possible contamination of the environment.
(c) Med-Search and Suncrest each has conducted its business in
accordance with all applicable laws, regulations, orders and other requirements
of governmental authorities relating to Hazardous Substances and the use,
storage, treatment, disposal, transport, generation, release and exposure of
others to Hazardous Substances. Neither Med-Search nor Suncrest has received
any notice of any investigation, claim or proceeding relating to Hazardous
Substances and neither is aware of any fact or circumstance which could involve
them in any Environmental Litigation. Between the date hereof and Closing,
there shall not have occurred any failure by Med-Search or Suncrest to comply
with applicable Environmental Regulation and there shall not have occurred any
Environmental Litigation that shall have a Material Adverse Effect on Med-Search
or Suncrest.
4.10 ACCOUNTS RECEIVABLE. All of the accounts receivable of each of
Med-Search, MS Acquisition Corporation and Suncrest is shown on its Balance
Sheet or thereafter arose in the ordinary and usual course of its business. The
values at which accounts receivable are carried effect the accounts receivable
valuation policy of Med-Search, MS Acquisition Corporation and Suncrest which is
consistent with past practice and in accordance with GAAP applied on a
consistent basis.
4.11 TAXES. As of the date of Closing, Med-Search, MS Acquisition
Corporation and Suncrest will have duly filed with the appropriate United
States, state, local and foreign governmental agencies all tax returns and
reports required to be filed (subject to permitted extensions applicable to such
filings), which returns are accurate and complete, and have paid or accrued in
full all Taxes. The Med-Search Balance Sheet fully accrues (and the balance
sheets subsequent to the date of the Med-Search Balance Sheet prior to the
Closing Date will fully accrue) all current and deferred Taxes. Neither
Med-Search, MS Acquisition Corporation nor Suncrest is a party to any pending
action or proceeding, nor, to the knowledge of Med-Search, MS Acquisition
Corporation or Suncrest, is any such action or proceeding threatened by any
governmental authority for the assessment or collection of Taxes.
4.12 COMPLIANCE WITH LAW. All Permits of Med-Search, MS Acquisition
Corporation and Suncrest which are necessary to the conduct of their businesses
are in full force and effect and neither Med-Search, MS Acquisition Corporation
nor Suncrest is in violation of any Permit in any material respect. Each of
Med-Search, MS Acquisition Corporation and Suncrest has made available to
Prospect Medical Systems and Investor all material filings made to, and all
inspection or compliance survey reports received from, the California Department
of Corporations, Department of Health Services and the JCAHO for the last two
years and will make available to Prospect Medical Systems and Investor all other
Permits as requested by such party. Each of such filings was in material
compliance with all applicable laws and regulations; none of the filings
contained an untrue statement of a material fact or omitted to state a material
fact. Except for possible violations which would not have a Material Adverse
Effect on Med-Search, MS Acquisition Corporation and Suncrest, the businesses of
Med-Search, MS Acquisition Corporation and Suncrest have been conducted in
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accordance with all applicable laws, regulations, orders and other requirements
of governmental authorities.
4.13 LICENSURE AND REIMBURSEMENT. As of the Effective Time:
(a) Each of Suncrest's employee-physicians is duly licensed to
practice his or her profession in the State of California without restriction;
and Med-Search and Suncrest have all licenses, permits, approvals and
authorizations necessary for the conduct of their business as presently
conducted.
(b) Suncrest is participating in the Medicare and Medicaid programs
and in any other applicable governmental health care payment programs, and has
been and will continue to be authorized to receive reimbursement from such
programs for fees and charges incurred by eligible patients for their services.
Neither Med-Search nor Suncrest has received any notice on or before the
Effective Time that any such license, participation or authorization has been or
is threatened to be terminated or, in any material respect, restricted, and
neither Med-Search nor Suncrest knows of any basis for any such termination or
restriction. As of the Effective Time there is no federal or state
investigation pending or, to the best of Med-Search's and Suncrest's knowledge,
contemplated, that will have an impact upon Suncrest's reimbursement status or
Suncrest's ability to operate a medical practice in California. Neither
Med-Search nor Suncrest has received any notice of action on or before the
Effective Time nor, to the best of Med-Search's and Suncrest's knowledge, is
there any threatened or likely action by the Medicare or Medicaid program or any
carrier, to recoup or challenge any Medicare or Medicaid reimbursement that
Suncrest has received or for which there currently is a claim pending for
services rendered at or in connection with Suncrest.
4.14 FRAUD AND ABUSE. Each of Med-Search, MS Acquisition Corporation and
Suncrest, their officers, employees, agents, independent contractors and staff
members have not engaged in any activities which are prohibited under federal
Medicare and Medicaid statutes, 42 U.S.C. Section 1320a-7b, or the regulations
promulgated pursuant to such statutes or related state or local statutes or
regulations or which are prohibited by rules of professional conduct or which
otherwise could constitute fraud, including but not limited to the following:
(i) knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(ii) knowingly and willingly making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment, (iii) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or payment
on its behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently, (iv) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (A)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (B) in return for
purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid.
4.15 LITIGATION. Except as set forth on Exhibit E, there is no claim,
dispute, action, proceeding, suit, appeal or investigation, at law or in equity,
pending against Med-Search, MS
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Acquisition Corporation or Suncrest, or involving any of their respective
assets or properties, before any court, agency, governmental department or
agency, commission, authority, arbitration panel or other tribunal, and, to the
knowledge of each of Med-Search, MS Acquisition Corporation and Suncrest, none
have been threatened which would have a Material Adverse Effect on Med-Search,
MS Acquisition Corporation or Suncrest. Neither Med-Search, MS Acquisition
Corporation nor Suncrest is subject to any order, writ, injunction or decree of
any court, agency, authority, arbitration panel or other tribunal, nor is it in
default with respect to any notice, order, writ, injunction or decree.
4.16 CONTRACTS. Each of Med-Search, MS Acquisition Corporation and
Suncrest has made available to Prospect Medical Systems and Investor each
executory contract and agreement in the following categories to which it is a
party, or by which it is bound in any respect: (a) agreements for the purchase,
sale, lease or other disposition of equipment, goods, materials, research and
development, supplies, studies or capital assets, or for the performance of
services, which agreements are in one or more of the following categories: (i)
outside the ordinary course of business,(ii) involving payments by Med-Search,
MS Acquisition Corporation and Suncrest in excess of $50,000; (b) contracts or
agreements for the joint performance of work or services, and all other joint
venture agreements; (c) management or employment contracts, consulting
contracts, collective bargaining contracts, termination and severance
agreements; (d) notes, mortgages, deeds of trust, loan agreements, security
agreements, guarantees, debentures, indentures, credit agreements and other
evidences of indebtedness; (e) stock option, stock purchase, warrant, repurchase
or other contracts or agreements relating to any share of capital stock of
Med-Search, MS Acquisition Corporation or Suncrest; (f) contracts or agreements
with agents, brokers, solicitors, consignees, sales representatives or
distributors involving terms or commissions outside the ordinary course of
business; (g) contracts or agreements with any director, officer, employee,
consultant or stockholder; (h) powers of attorney or similar authorizations
granted by Med-Search, MS Acquisition Corporation or Suncrest to third parties;
(i) material licenses, sublicenses, royalty agreements and other contracts or
agreements to which Med-Search, MS Acquisition Corporation or Suncrest is a
party, or otherwise subject, relating to Proprietary Rights; (j) all contracts
with third party payors, including but not limited to, prepaid health plans,
preferred provider organizations and exclusive provider organizations; and (k)
other material contracts, including but not limited to material contracts
relating to Providers (as defined in Section 3.23 hereof), Medi-Cal, Medicare,
and the marketing of Med-Search's, MS Acquisition Corporation's and Suncrest's
business.
The contracts referred to herein remain in full force and effect in
accordance with their terms as of the Effective Time. Neither Med-Search, MS
Acquisition Corporation, Suncrest nor any other party to any such contract or
agreement (including, but not limited to, any landlord), is in default, or
alleged to be in default thereunder, and there exists no condition or event
which, with the giving of notice or the lapse of time or otherwise, would
constitute such a default by Med-Search, MS Acquisition Corporation, Suncrest or
by any other party to any such contracts or agreements. All of the contracts
are valid and enforceable by Med-Search, MS Acquisition Corporation, Suncrest,
subject to laws relating to bankruptcy, insolvency and equitable orders or
decrees.
Neither Med-Search, MS Acquisition Corporation nor Suncrest has
entered into any contract or agreement containing covenants limiting the right
of Med-Search, MS Acquisition Corporation or Suncrest to compete in any business
or with any person. As used in this Agreement,
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the terms "contract" and "agreement" include every contract, agreement,
commitment, understanding and promise, whether written or oral.
4.17 PROPRIETARY RIGHTS.
(a) Each of Med-Search, MS Acquisition Corporation and Suncrest owns
or possesses licenses or other rights to use all Proprietary Rights, used in the
business of Med-Search, MS Acquisition Corporation and Suncrest, and the same
are sufficient to conduct the business of Med-Search, MS Acquisition Corporation
and Suncrest as it has been and is now being conducted.
(b) The operations of each of Med-Search, MS Acquisition Corporation
and Suncrest do not conflict with or infringe, and no one has asserted to
Med-Search, MS Acquisition Corporation or Suncrest that such operations conflict
with or infringe, any Proprietary Rights of any third party. There are no
claims, disputes, actions, proceedings or suits pending against Med-Search, MS
Acquisition Corporation or Suncrest with respect to any Proprietary Rights, and,
to the knowledge of each of Med-Search, MS Acquisition Corporation and Suncrest,
none has been threatened. To the knowledge of Med-Search, MS Acquisition
Corporation and Suncrest, there are no facts or alleged facts which would
reasonably serve as a basis for any claim that any of them does not have the
right to use, free of any rights or claims of others, all Proprietary Rights in
the conduct of the business of Med-Search, MS Acquisition Corporation and
Suncrest as it has been and is now being conducted.
4.18 INSURANCE. Med-Search has provided Prospect Medical Systems and
Investor with a complete list of all policies of insurance to which it is a
party or is a beneficiary or named insured and all claims which have been made
to the insurers. Med-Search has in full force and effect with all premiums due
thereon paid, the policies of insurance set forth therein. The insurable
properties of Med-Search are insured in amounts and coverages and against risks
and losses which are adequate and usually insured against by persons providing
or arranging for the provision of health care services or holding or operating
similar properties in similar businesses. There were no claims in excess of
policy limits asserted under any of the insurance policies in respect of all
motor vehicle, general liability, fidelity bonds, professional liability,
reinsurance and workers' compensation, and medical claims. To the knowledge of
Med-Search, the insurers have no right to terminate or reduce such coverage
before the end of applicable policy periods and each of them has complied with
its obligations under such policies.
4.19 CERTAIN ADVANCES. There are no receivables of Med-Search, MS
Acquisition Corporation or Suncrest owing from directors, officers, employees,
consultants or stockholders of Med-Search, MS Acquisition Corporation or
Suncrest, or owing by any Affiliate of any director or officer of Med-Search, MS
Acquisition Corporation or Suncrest, including but not limited to amounts owed
from Med-Search to Suncrest, except for advances in the ordinary and usual
course of business to officers and employees for reimbursable business expenses.
4.20 RELATED PARTIES. Except for the control of Suncrest by Xxxxxxx Xxxxx,
as representative of the Estate of Noble, which is the sole stockholder of
Suncrest, neither Med-Search, MS Acquisition Corporation or Suncrest, nor any
officer or director of any of them, or any Affiliate of any such entity, has,
either directly or indirectly, (a) an interest in any corporation, partnership,
firm
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or other person or entity which furnishes or sells services or products which
are similar to those furnished or sold by Med-Search, MS Acquisition Corporation
or Suncrest, or (b) a beneficial interest in any contract or agreement to which
Med-Search, MS Acquisition Corporation and Suncrest is a party or by which it
may be bound. For purposes of this Section 4.20, there shall be disregarded any
interest which arose solely from the ownership of less than a five percent (5%)
equity interest in a corporation whose stock is regularly traded on any national
securities exchange or in the over-the-counter market.
4.21 UNDERLYING DOCUMENTS. Copies of any underlying documents listed or
described as having been disclosed to Prospect Medical Systems and Investor
pursuant to this Agreement have been furnished. All such documents furnished to
Prospect Medical Systems and Investor are true and correct copies, and there are
no amendments or modifications thereto, that have not been disclosed to such
parties.
4.22 EMPLOYEES AND UNION ACTIVITIES. Each of Med-Search, MS Acquisition
Corporation and Suncrest has complied with all applicable state and federal laws
and regulations related to employees and employment practices, except where the
failure to comply would have no Material Adverse Effect on Med-Search, MS
Acquisition Corporation and Suncrest. The employee relations of Med-Search, MS
Acquisition Corporation and Suncrest are good and there is no pending or
threatened labor dispute.
4.23 EMPLOYEE BENEFIT PLANS.
(a) Neither Med-Search nor Suncrest nor any of its Med-Search ERISA
Affiliates (as defined herein) maintains, is a party to, contributes to, is
obligated to contribute to, and neither its nor any of its Med-Search ERISA
Affiliates employees or former employees and their dependents or survivors
receive benefits under, any of the following (whether or not set forth in a
written document):
(i) Any employee pension benefit plan, as defined in section
3(2) of the Employee Retirement Income Security Act of 1974, as amended,
including (without limitation) any multiemployer plan, as defined in section
3(37) of ERISA;
(ii) Any employee welfare benefit plan, as defined in section
3(l) of ERISA,
(iii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
debenture, supplemental pension, profit-sharing royalty pool, commission or
similar plan or arrangement;
(iv) Any plan, program, agreement policy, commitment or other
arrangement relating to severance or termination pay, whether or not published
or generally known;
(v) Any plan, program, agreement. policy, commitment or other
arrangement relating to the provision of any benefit described in section 3(l)
of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the Consolidated Omnibus Budget
Reconciliation Act of 1984;
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(vi) Any employment consulting or termination agreement; or
(vii) Any other plan, program, agreement procedure, policy,
commitment, understanding or other arrangement relating to employee benefits,
executive compensation, fringe benefits, severance pay, terms of employment or
services as an independent contractor, whether foreign or domestic.
"Med-Search ERISA Affiliate" means any entity that, together with each
of Med-Search, MS Acquisition Corporation and Suncrest, is treated as a single
employer under section 414(b), 414(c), 414(m) or 414(o) of the Code.
(b) Neither Med-Search nor Suncrest nor any of its Med-Search ERISA
Affiliates has, since 1993 terminated, suspended, discontinued contributions to
or withdrawn from any employee pension benefit plan, as defined in section 3(2)
of ERISA, including (without limitation) any multiemployer plan, as defined in
section 3(37) of ERISA.
(c) No payment made to any employee, officer, director or independent
contractor of Med-Search or Suncrest pursuant to any Golden Parachute Payment
will be nondeductible by Med-Search or Suncrest because of the application of
sections 28OG and 4999 of the Code to the Golden Parachute Payment, nor will
Med-Search or Suncrest be required to compensate any Recipient because of the
imposition of an excise tax (including any interest or penalties related
thereto) on the Med-Search Recipient by reason of sections 28OG and 4999 of the
Code.
(d) Neither Med-Search nor Suncrest nor any Med-Search ERISA
Affiliate has any unfunded liability relating to retiree life and medical
benefits for its current or former employees and their dependents.
4.24 ACTIVITIES OF PROVIDERS AND ENROLLEE GROUPS. Neither Med-Search, MS
Acquisition Corporation nor Suncrest has knowledge:
(a) that any of its IPA Providers are organized or attempting to
organize any entity (whether or not incorporated) for the purpose of bargaining
or otherwise dealing with it on a collective basis (except with respect to
individual providers who have formed professional corporations or partnerships
for the purpose of providing medical services or except with respect to the IPAs
and medical groups which currently contract with them);
(b) that any Providers have expressed an intent (whether or not
legally binding) to disenroll or not to renew as providers;
(c) that IPAs, other medical groups, individual doctors which
contract with Suncrest and which serve individually or in the aggregate more
than 200 enrollees have expressed an intent (whether or not legally binding) to
terminate or not to renew their respective contracts; or
(d) of any circumstances likely to result in disenrollment of
enrollees, the loss of which individually and in the aggregate would have a
Material Adverse Effect on it.
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4.25 INSPECTIONS. Med-Search and Suncrest have accurately and fully
described (i) all inspections of their businesses or operations by any
governmental agency or any consultant at any time since their inception; (ii)
all matters which were noted by any and all such governmental agency or
consultant as requiring correction or modifications which were requested or
recommended; and (iii) the present status of each such noted matter.
4.26 SECTION 203 OF THE DGCL NOT APPLICABLE. The provisions of Section 203
of the Delaware General Corporation Law relating to business combinations with
interested stockholders, will not, prior to the termination of this Agreement,
apply to this Agreement, the Merger or the transactions contemplated hereby and
thereby.
4.27 REPRESENTED BY COUNSEL. Med-Search and MS Acquisition Corporation
have been represented at all times during the negotiation of this Agreement and
the transactions contemplated hereby solely by the Law Offices of Xxxxx X.
Xxxxx.
4.28 REPRESENTED BY COUNSEL. Suncrest has been represented at all times
during the negotiation of this Agreement and the transactions contemplated
hereby solely by the Law Offices of Xxxxxxx X. Xxxxxxxx.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
Effective Time, each of Med-Search, MS Acquisition Corporation, Suncrest,
Prospect Medical Systems and Prospect Medical Group agree that:
5.1 ORDINARY COURSE. Med-Search, MS Acquisition Corporation, Suncrest,
Prospect Medical Systems and Prospect Medical Group shall carry on its business
in the usual, regular and ordinary course, including the payment of all state
and federal taxes, in substantially the same manner as heretofore conducted and,
to the extent consistent with such businesses, use all commercially reasonable
efforts consistent with past practice and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationship with existing and
potential customers, enrollees, and others having business dealings with it to
the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time.
5.2 DIVIDENDS; CHANGES IN STOCK. Except for the proposed reverse split of
Med-Search Common Stock, each of Med-Search, MS Acquisition Corporation,
Suncrest, Prospect Medical Systems and Prospect Medical Group shall not and
shall not propose to (a) declare or pay any dividends on or make other
distributions in respect of any of their capital stock, (b) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
their capital stock, or (c) repurchase or otherwise acquire any shares of its
capital stock or rights to acquire any shares of their capital stock.
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5.3 ISSUANCE OF SECURITIES. Except as described in Exhibit F and the
proposed issuance of Med-Search Common to Xxxx X. Xxxxxx, M.D., neither
Med-Search, MS Acquisition Corporation, Suncrest, Prospect Medical Systems or
Prospect Medical Group shall issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock of any class or securities convertible into, or
rights, warrants or options to acquire, any such shares or other convertible
securities.
5.4 GOVERNING DOCUMENTS. Except as otherwise contemplated herein, neither
Med-Search, MS Acquisition Corporation, Suncrest, Prospect Medical Systems or
Prospect Medical Group shall amend their charter documents or Bylaws.
5.5 NO SOLICITATIONS. None of Med-Search, MS Acquisition Corporation,
Suncrest, Prospect Medical Systems or Prospect Medical Group shall directly or
indirectly, through any officer, director, employee or agent (including any
investment banker, financial advisor, attorney, accountant or other
representative or agent) or otherwise solicit, initiate or encourage inquiries
or the submission of proposals or offers from any third party relating to any
acquisition or purchase of all or substantially all of the business, properties
or assets of, or any equity interest in such entity or any merger,
consolidation, business combination or similar transaction, other than pursuant
to this Agreement involving such entity (an "Acquisition Transaction"), or shall
participate in any discussions or negotiations regarding, or furnish to any
other person any confidential information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or agree to endorse or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing.
5.6 NO ACQUISITIONS. Except as set forth in Exhibit G, none of
Med-Search, MS Acquisition Corporation, Suncrest, Prospect Medical Systems or
Prospect Medical Group shall (a) acquire or agree to acquire by merging or
consolidating with or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or (b) otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to such party except in the ordinary course of business consistent
with prior practice.
5.7 NO DISPOSITIONS. Except as set forth in the Asset Purchase Agreement,
none of Med-Search, MS Acquisition Corporation, Suncrest, Prospect Medical
Systems or Prospect Medical Group shall sell, lease or otherwise dispose of any
of its assets, individually or in the aggregate, except in the ordinary course
of business consistent with prior practice.
5.8 INDEBTEDNESS. Except for capital leases entered into in the ordinary
course of business, none of Med-Search, MS Acquisition Corporation, Suncrest,
Prospect Medical Systems or Prospect Medical Group shall incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others.
5.9 PROVIDER AND BUSINESS RELATIONS. Each of Med-Search, MS Acquisition
Corporation, Suncrest, Prospect Medical Systems and Prospect Medical Group will
use its best efforts to preserve the business organization and the health plan
provider networks, to keep available the services of present employees, agents
and representatives (except those employees terminated for cause or
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consistent with sound business practices) and to preserve the goodwill and
relationships of physician other medical staff, Providers, suppliers, patients
and others with whom business relationships exist.
5.10 OTHER ACTIONS. None of Med-Search, MS Acquisition Corporation,
Suncrest, Prospect Medical Systems or Prospect Medical Group shall permit any of
their officers, directors, employees or agents to take any action that would, or
reasonably would be expected to, result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions set forth in Article 7 not being satisfied.
5.11 ADVICE OF CHANGES; GOVERNMENT FILINGS. Med-Search, MS Acquisition
Corporation, Suncrest, Prospect Medical Systems and Prospect Medical Group shall
confer on a regular and frequent basis, with one another and Investor, report on
operational matters and promptly advise one another and Investor in writing of
any change or event having, or which, insofar as can reasonably be foreseen,
could have, a Material Adverse Effect on such party or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein. Except where prohibited by applicable
statutes and regulations, Med-Search, MS Acquisition Corporation, Suncrest,
Prospect Medical Systems and Prospect Medical Group shall promptly provide the
other party and Investor (or its counsel) with copies of all other filings made
by such party with any state or federal governmental entity in connection with
this Agreement or the transactions contemplated hereby.
5.12 ACCOUNTING METHODS. None of Med-Search, MS Acquisition Corporation,
Suncrest, Prospect Medical Systems or Prospect Medical Group shall change their
methods of accounting in effect as of the date hereof except as required by
changes in GAAP.
5.13 TAX-FREE REORGANIZATION TREATMENT. None of Med-Search, MS Acquisition
Corporation, Suncrest, Prospect Medical Systems or Prospect Medical Group shall
take or cause to be taken any action, whether before or after the Effective
Time, that would disqualify the Merger as a "reorganization" within the meaning
of Section 368(a) of the Code.
5.14 COMPENSATION, BENEFIT PLANS. None of Med-Search, MS Acquisition
Corporation, Suncrest, Prospect Medical Systems or Prospect Medical Group shall
(i) adopt or amend in any material respect any collective bargaining agreement
with employees, (ii) enter into, adopt, amend or terminate any benefit plan or
any other employee benefit plan or any agreement, arrangement, plan or policy
between such party and one or more of its directors or officers, in each case so
as to materially increase benefits thereunder, (iii) increase the compensation
or fringe benefits of any director, officer or employee or provide any other
benefit not required by any plan or arrangement in effect as of the date hereof
from the level set at December 31, 1994 (including, without limitation, the
granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares) or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing, (iv)
create or amend any stock plan or grant any equity based award pursuant to any
stock plan or otherwise other than employee stock options granted consistent
with the preceding clause (iii) and having an exercise price not less than
market value at the time of grant, or (v) enter into or renew any contract,
agreement, commitment or arrangement providing for the payment to any director,
officer or employee of such party of compensation or benefits contingent,
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or the terms of which are materially altered, upon the occurrence of any of the
transactions contemplated by this Agreement.
5.15 PROSPECT MANAGEMENT AGREEMENT. Prospect Medical Systems shall not
amend the Prospect Management Agreement, nor any of the exhibits thereto.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 ACCESS TO INFORMATION. Each of Med-Search, Suncrest and Prospect
Medical Systems shall afford the other parties and shall cause its independent
accountants to afford to such persons, and their accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to all of its properties, books, contracts,
commitments and records and to the independent accountants reasonable access to
the audit work papers and other records of its accountants. During such period,
each of Med-Search, Suncrest and Prospect Medical Systems shall use reasonable
efforts to furnish promptly to the other all information concerning the
business, properties and personnel as may be reasonably requested. No party
will use such information for purposes other than this Agreement and will
otherwise hold such information in confidence until such time as such
information otherwise becomes publicly available, and in the event of
termination of this Agreement for any reason each party shall promptly return,
or cause to be returned, to the disclosing party all documents obtained from the
other party and any copies made of such documents, extracts and copies thereof.
6.2 LEGAL CONDITIONS TO THE MERGER. Each of Med-Search, Suncrest and
Prospect Medical Systems will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on such party with
respect to the Merger and will promptly cooperate with and furnish information
to the other parties in connection with any such requirements imposed upon such
other party in connection with the Merger. Each of Med-Search, Suncrest and
Prospect Medical Systems will take all reasonable actions to obtain (and to
cooperate with the other party in obtaining) any consent, authorization, order
or approval of, or any exemption by, any governmental authority, or other third
party, required to be obtained or made by such party in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
6.3 MED-SEARCH STOCKHOLDERS' APPROVAL. Med-Search agrees to submit this
Agreement, the Certificate of Merger, the Certificates of Amendment to its
Certificate of Incorporation, and any related matters to its stockholders for
approval, by means of the Joint Information Statement, all as provided by law
and its Certificate of Incorporation and Bylaws. The Board of Directors of
Med-Search has unanimously recommended to the Med-Search stockholders that such
stockholders approve the transactions contemplated by this Agreement and the
Certificate of Merger.
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6.4 PROSPECT MEDICAL SYSTEMS STOCKHOLDERS' APPROVAL. Prospect Medical
Systems agrees to submit this Agreement, Certificates of Amendment to
Certificate of Incorporation, Certificate of Merger and any related matters to
its stockholders for approval, by means of the Joint Information Statement, all
as provided by law and its Certificate of Incorporation and Bylaws. The Board
of Directors of Prospect Medical Systems has unanimously recommended to the
Prospect Medical Systems stockholders that such stockholders approve the
transactions contemplated by this Agreement and the Certificate of Merger.
6.5 DISSENTING SHARES. Med-Search shall provide a notice at the time the
Joint Information Statement is delivered to stockholders for their approval, a
notice as required by Sections 2115 and 1203 of the California Corporations
Code, as amended, informing them of their opportunity to dissent from the terms
of the Merger and related transactions. As promptly as practicable after the
Joint Information Statement and prior to the Closing Date, each party shall
furnish to the other and Investor with the name, address of each Dissenting
Stockholder and number of Dissenting Shares owned by each such Dissenting
Stockholder.
6.6 BLUE SKY LAWS. Each of Med-Search and Prospect Medical Systems shall
take such steps as may be necessary to comply with the securities and Blue Sky
laws of all jurisdictions which are applicable in connection with the Merger.
6.7 COMMUNICATIONS. Between the date hereof and the Effective Time,
neither Prospect Medical Systems, Prospect Medical Group nor Med-Search will
furnish any communication to its stockholders or to the public generally if the
subject matter thereof relates to the other party or to the transactions
contemplated by this Agreement or the Certificate of Merger without the prior
approval of the other party as to the content thereof, which approval shall not
be unreasonably withheld (unless such disclosure is nonetheless required in the
opinion of counsel), and subject to each party's compliance with applicable law.
6.8 DELIVERY OF STOCK CERTIFICATES. Med-Search will issue and deliver as
and when required by the provisions of this Agreement, the certificates
representing the shares of Med-Search Common into which the shares of Prospect
Medical Systems Common outstanding immediately prior to the Effective Time shall
have been converted as provided in this Agreement.
6.9 UPDATE TO DISCLOSURES. Without limiting any party's right to rely on
the representations and warranties as of the date of this Agreement, each of
Med-Search, Suncrest, Prospect Medical Systems and Prospect Medical Group shall
provide the other parties with updates to the disclosures provided or made
available to such other parties as to material facts which arise between the
date of this Agreement and the Closing Date and which, if they had occurred and
been known prior to the date of this Agreement would have been required to have
been disclosed in order to make the representations and warranties contained in
Article 3 or Article 4, as applicable, true and correct as of the date of this
Agreement.
6.10 GOOD FAITH. Each party shall act in good faith in an attempt to cause
all the conditions precedent to its obligations under this Agreement to be
satisfied. Each party will act in good faith and take all reasonable action
within its capability necessary to render accurate as of the Effective Time its
representations and warranties contained in this Agreement.
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6.11 STATE STATUTES. If any state takeover law shall become applicable to
the transactions contemplated by this Agreement, Med-Search and its Board of
Directors shall use their reasonable best efforts to obtain such approvals and
take such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effects of such
state takeover law on the transactions contemplated by this Agreement.
6.12 COMPOSITION OF MED-SEARCH BOARD. Immediately after the Effective
Time, Med-Search shall reduce the size of the Board of Directors to five (5)
members and appoint to fill such newly-created vacancies with Xxxxx X. Xxxxxx,
M.D., Xxxxx Xx Xxxxxx, M.D., Xxxxx Xxxxxxxxx and two directors to be chosen at
a later date, and in the event of their refusal or inability to serve, such
directors of Prospect Medical Systems who are satisfactory to Med-Search.
Further, Investor shall be named Chairman of the Board and Chief Executive
Officer of Med-Search and Xxxxx Xx Xxxxxx shall be named President.
6.13 SETTLEMENT OF CLAIMS. From the date hereof to the Effective time,
Med-Search shall at the direction of Investor settle creditor claims using the
Private Placement Funds which will be available after the Effective Time. No
other settlements shall be made without the agreement of Investor.
6.14 MAINTENANCE/ASSIGNMENT OF HMO CONTRACTS. The parties agree to use
their best efforts to maintain Suncrest's existing Health Maintenance
Organization contracts and to transfer such contracts to Prospect Medical Group
at the Closing. Additionally, Suncrest acknowledges that, due to the fact that
FHP HealthPlan had provided notice of its intention to terminate its agreement
with Suncrest, Suncrest has previously assigned its existing FHP contract to
Prospect Medical Group. In the event that the Merger is not consummated due to
the inability of Med-Search or Suncrest to complete the transaction, the
assignment to Prospect Medical Group shall remain valid and enforceable and no
party shall have any liability resulting from the transfer of such contract.
6.15 FINDERS FEE. At the Closing, Med-Search shall issue to each of Xxxxx
Xxxxxxx, LK Management Inc. and Warner Capital Associates, a warrant to purchase
200,000 pre-split shares of Med-Search Common Stock for a period of five years
at an exercise price of $0.03125 per share. Other than as set forth herein,
each party represents that there are no other finders or brokers entitled to
receive any compensation from any of the transactions contemplated by this
Agreement.
6.16 FAIRNESS OPINION. Med-Search shall include in the Joint Information
Statement as required by Section 1203 of the California Corporations Code, a
written opinion as to the fairness of the consideration being received in the
transaction.
6.17 INCREASE IN NUMBER OF AUTHORIZED SHARES OF MED-SEARCH COMMON. At the
Closing, or as soon as practicable after the Med-Search stockholders have
approved Med-Search's Certificate of Amendment of Certificate of Incorporation
increasing the number of authorized shares of Med-Search Common from 29,000,000
to 250,000,000, as provided in the Joint Information Statement, Med-Search shall
cause the filing of such Certificate of Amendment of Certificate of
Incorporation with the Delaware Secretary of State.
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ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of the following conditions
unless waived by such party:
(a) STOCKHOLDER APPROVAL. This Agreement and the other matters
disclosed in the Joint Information Statement shall have been approved and
adopted by the required affirmative vote of the holders of the outstanding
shares of Med-Search Common and of Prospect Medical Systems.
(b) GOVERNMENT APPROVALS. All authorizations, consents, orders or
approvals of, or declarations of filings with, or expiration of waiting periods
imposed by, any governmental authority necessary for the consummation of the
transactions contemplated by this Agreement, and any such requirements under
applicable state securities laws shall have been filed, occurred or been
obtained, other than filings with and approvals by foreign governments relating
to the Merger, if failure to make such filings or obtain such approvals would
not be materially adverse to Med-Search or Prospect Medical Systems. There
shall be no regulatory action threatened or pending which could result in
suspension or revocation of any Permits held by Prospect Medical Systems,
Prospect Medical Group, or Suncrest.
(c) THIRD-PARTY APPROVALS. Any and all consents or approvals
required from third parties relating to contracts, agreements, permits, leases
and other instruments, material to the respective businesses of Med-Search
(unless waived by Prospect Medical Systems and Investor) or Prospect Medical
Systems (unless waived by Med-Search and Investor) shall have been obtained.
(d) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any federal or state court and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
shall be pending which, in the good faith judgment of Prospect Medical Systems'
or Med-Search's Board of Directors has a reasonable probability of resulting in
such order or injunction. In the event any such order or injunction shall have
been issued, each party agrees to use its reasonable efforts to have any such
injunction lifted.
(e) STATUTES. No statute, rule or regulation shall have been enacted
by the government of the United States or any state or agency thereof which
would (i) make the consummation of the Merger illegal, (ii) prohibit
Med-Search's or Surviving Corporation's ownership or operation of all or a
material portion of the business or assets of Prospect Medical Systems, or
compel Med-Search or Surviving Corporation to dispose of or hold separate all or
a material portion of the business or assets of Prospect Medical Systems, as a
result of the Merger, or (iii) render Med-
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Search, Prospect Medical Systems or MS Acquisition Corporation unable to
consummate the Merger, except for any waiting period provisions.
(f) INVESTOR PRIVATE PLACEMENT. Pursuant to the terms of the
Investment Agreement, immediately prior to the Closing, Investor shall have
deposited in trust, $2,500,000, either in cash or in receipts for reimbursable
expenses, as the proceeds of the Med-Search Placement. Unless otherwise waived,
Investor's obligation shall be conditioned on its reliance on representations
and warranties in Articles 3 and 4 of this Agreement.
(g) FILING OF TAX RETURNS. Med-Search shall have filed all federal,
state, local and foreign governmental tax returns for fiscal years 1993, 1994
and 1995, and shall have paid any and all taxes due, including penalties and
fines. Prospect Medical Systems and Investor shall have received adequate
assurances that Med-Search has no further tax liabilities.
(h) ACQUISITIONS OF SUNCREST ASSETS. Pursuant to the terms of the
Asset Purchase Agreement, Suncrest shall have transferred those assets to be
sold under such agreement to Prospect Medical Group.
(i) CERTIFICATE OF INVESTOR. Investor shall have delivered a
certificate evidencing his ability to infuse $2,500,000 into Med-Search
immediately following the Merger pursuant to his obligations under the
Investment Agreement.
7.2 CONDITIONS TO OBLIGATIONS OF MED-SEARCH AND MS ACQUISITION
CORPORATION. The obligations of Med-Search and MS Acquisition Corporation to
effect the Merger are subject to the satisfaction on or prior to the Closing
Date of the following conditions, unless waived by Med-Search and MS Acquisition
Corporation:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Prospect Medical Systems and Prospect Medical Group set forth in
this Agreement and the Certificate of Merger shall be true and correct in all
respects as of the date of this Agreement and as if made at and as of the
Closing Date, except as otherwise contemplated by this Agreement, and Med-Search
shall have received a certificate or certificates signed by the chief executive
officer and chief financial officer of Prospect Medical Systems and Prospect
Medical Group to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PROSPECT MEDICAL SYSTEMS AND
PROSPECT MEDICAL GROUP. Prospect Medical Systems and Prospect Medical Group
shall have performed in all respects all obligations required to be performed by
each under this Agreement and the Certificate of Merger prior to the Closing
Date, and Med-Search shall have received a certificate signed by the chief
executive officer and chief financial officer of Prospect Medical Systems and
Prospect Medical Group to such effect.
(c) OPINION OF PROSPECT MEDICAL SYSTEMS' COUNSEL. Med-Search shall
have received an opinion dated the Closing Date of Xxxxxx & Parks, counsel to
Prospect Medical Systems, in a form reasonably satisfactory to Med-Search's
counsel, with such qualifications thereto as are customary and reasonable.
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(d) CONSULTING ARRANGEMENTS AND COVENANTS NOT TO COMPETE. Concurrent
with the Closing, each of Xxxxx Xxxxxxxxxx and Xxxxx Xxxxxxx shall execute a
Consulting Agreement, in the form attached hereto as Exhibit H, pursuant to
which they shall serve as consultants to Med-Search for a six month period
pursuant to the terms of a consulting agreement providing for payment of $45,000
to each at the Closing and $5,000 per month for a six month period thereafter.
Messrs. Xxxxxxxxxx and Xxxxxxx shall also execute a covenant not to compete for
a period of 18 months from the Closing satisfactory to Investor and Prospect
Medical Systems.
7.3 CONDITIONS TO OBLIGATIONS OF PROSPECT MEDICAL SYSTEMS. The
obligations of Prospect Medical Systems to effect the Merger are subject to the
satisfaction on or prior to the Closing Date of the following conditions unless
waived by Prospect Medical Systems:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Med-Search, MS Acquisition Corporation and Suncrest set forth in
this Agreement shall be true and correct in all respects as of the date of this
Agreement and as if made at and as of the Closing Date, except as otherwise
contemplated by this Agreement, and Prospect Medical Systems shall have received
a certificate signed by the chief executive officer and chief financial officer
of Med-Search to such effects as to Med-Search and MS Acquisition Corporation
and of Suncrest as to Suncrest.
(b) DUE DILIGENCE. Prospect shall have completed satisfactory due
diligence of Med-Search, MS Acquisition Corporation and Suncrest. This shall
include the satisfactory resolution or settlement of all outstanding claims,
demands, lawsuits or matters in arbitration.
(c) PERFORMANCE OF 0BLIGATIONS OF MED-SEARCH AND MS ACQUISITION
CORPORATION. Med-Search and MS Acquisition Corporation shall have performed in
all respects all obligations required to be performed by them under this
Agreement prior to the Closing Date, and Prospect Medical Systems shall have
received a certificate signed by the chief executive officer and chief financial
officer of Med-Search to such effect.
(d) OPINION OF MED-SEARCH'S COUNSEL. Prospect Medical Systems shall
have received an opinion dated the Closing Date of Xxxxx X. Xxxxx, Esq., outside
counsel to Med-Search, in a form reasonably satisfactory to Prospect Medical
Systems' counsel, with such qualifications thereto as are customary and
reasonable which shall include without limitation an opinion that Med-Search has
observed proper corporate formalities.
(e) RESIGNATIONS. The resignation of officers and directors of
Med-Search and MS Acquisition Corporation, whose replacement shall be designated
by Investor as set forth in Section 6.12 herein or as otherwise determined by
Investor and Prospect Medical Systems.
(f) AUDIT. Completion of audited financial statements of Med-Search
and Suncrest by BDO Xxxxxxx, LLP, in accordance with generally accepted
accounting principles for the following periods: a consolidated statement of
operations, statement of stockholders' equity and statement of cash flows for
the three fiscal years ended September 30, 1993, 1994, and 1995, and
Med-Search's audited consolidated balance sheet at September 30, 1995.
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(g) EMPLOYMENT. Xxxxx Xx Xxxxxx, M.D. shall have executed an
employment agreement satisfactory to Investors and Prospect Medical Systems.
(h) RELEASES. Each of Xxxxx Xxxxxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx
Xxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxxxxx, Xxxxxxx X. Xxxxx, Costa De Oro Medical
Group, Xxxx X. Xxxxxx, M.D., and Xxxxx Xxxxxxxxx, M.D. shall have executed a
release satisfactory to Investor and Prospect Medical Systems.
(i) LIABILITY. Receipt of satisfactory evidence that Med-Search has
no liability to Xxxxx Xxxxxxxx and Xxxx Xxxxxxx or any other party associated
with such claim.
(j) NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there shall
have been no changes in the condition (financial or otherwise), employees,
operations, obligations or liabilities of Med-Search or Suncrest which, in the
aggregate, have had or may be reasonably expected to have a material adverse
effect on Med-Search or Suncrest.
(k) TERMINATION OF ADMINISTRATIVE SERVICES AGREEMENT. Med-Search and
Suncrest shall have terminated the Administrative Services Agreement dated July
1, 1993, by and between Med-Search and Suncrest.
ARTICLE 8
CLOSING
8.1 CLOSING DATE. The Closing under this Agreement (the "Closing") shall
be held as promptly as practicable, but not more than one (1) business day
following the later of (a) the approval of the Merger by the stockholders of
Med-Search and (b) satisfaction of all other conditions precedent to the Merger
specified in this Agreement, unless duly waived by the party entitled to
satisfaction thereof. In any event, if the Closing has not occurred on or
before July 31, 1996, this Agreement may be terminated as provided in Section
11.1(c). Such date on which the Closing is to be held is herein referred to as
the "Closing Date." The Closing shall be held at the offices of Xxxxxx &
Xxxxxxx, 0000 Xxxxxxx Xxxx Xxxx, 0xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx, at 10:00
A.M. on such date, or on such other date and at such other time and place as the
parties may agree upon in writing.
8.2 FILING DATE. Subject to the provisions of this Agreement, on the
Closing Date, fully executed and acknowledged copies of the Certificate of
Amendment of Certificate of Incorporation increasing the number of authorized
shares of Med-Search Common from 29,000,000 to 250,000,000 and the Certificate
of Merger meeting the requirements of the Delaware General Corporation Law,
shall be filed with the Delaware Secretary of State, all in accordance with the
provisions of this Agreement.
8.3 PRIVATE PLACEMENT OF MED-SEARCH COMMON. Immediately following
confirmation by the Delaware Secretary of State of receipt and acceptance of (i)
the Certificate of Amendment of Med-Search's Certificate of Incorporation
increasing the number of shares of Med-Search from 29,000,000 to 250,000,000 and
(ii) the Certificate of Merger, the $2,500,000 raised in the Med-
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Search Placement shall be invested in Med-Search in return for the issuance by
Med-Search of 88,089,312 shares of Med-Search Common, representing approximately
42% of the Surviving Corporation's shares outstanding at the completions of the
Merger and the Med-Search Placement.
8.4 APPOINTMENT OF NEW BOARD OF DIRECTORS. As provided in Section 6.12
herein, immediately after the Effective Time, Xxxxx X. Xxxxxxxxxx, Xxxxx Xxxxxxx
and Xxxxxxx Xxxxx shall resign as directors and appoint Xxxxx X. Xxxxxx, M.D.,
Xxxxx Xx Xxxxxx, M.D. and Xxxxx Xxxxxxxxx as new directors.
8.5 CLOSING CERTIFICATES. Each of the officers and directors of Prospect
Medical Systems, Prospect Medical Group, Med-Search and Suncrest shall have
executed closing certificates stating that the representations, warranties and
covenants contained in this Agreement are true and correct as of the Closing.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations, warranties and covenants of Prospect Medical Systems,
Prospect Medical Group, Med-Search and Suncrest contained in this Agreement and
in the closing certificates executed as set forth in Section 8.5 herein, shall
survive the Effective Time. All representations, warranties and covenants in or
pursuant to this Agreement shall be deemed to be conditions to the Merger.
ARTICLE 10
PAYMENT OF EXPENSES
Med-Search, MS Acquisition Corporation and Prospect Medical Systems shall
each pay their own fees and expenses incurred incident to the preparation and
carrying out of the transactions herein contemplated (including legal,
accounting and travel). However, Investor has agreed to advance certain
expenses on behalf of Med-Search which shall be liabilities of Med-Search and
shall be reimbursed to Investor from Private Placement Proceeds. Such advances
include, but are not limited to: (a) audit expenses of Med-Search and Suncrest;
(b) Delaware franchise fees of Med-Search up to $30,000; (c) Investor's legal
fees in connection with the transactions contemplated herein, including without
limitation costs of the Merger, Med-Search Placement and due diligence expenses;
and (d) appraisal, printing, mailing, stock transfer and filing fees.
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ARTICLE 11
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of Med-Search or Prospect Medical
Systems:
(a) by mutual written consent of Investor, Prospect Medical Systems
and Med-Search;
(b) by Med-Search, Prospect Medical Systems or Investor if there has
been a material breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of the other party set forth in this
Agreement and, if such breach is curable, such breach has not been promptly
cured after written notice of such breach;
(c) by either Med-Search or Prospect Medical Systems if the Merger
shall not have been consummated before July 31, 1996, (which failure, in the
case of termination by Med-Search or MS Acquisition Corporation, was due to a
failure of any of the conditions to the obligations of Med-Search and MS
Acquisition Corporation set forth in Section 7.2 hereof and, in the case of
termination by Prospect Medical Systems, was due to a failure of any of the
conditions to the obligations of Prospect Medical Systems set forth in Section
7.3 hereof);
(d) by Med-Search, Prospect Medical Systems or Investor if (i) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger or (ii) there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any governmental authority which would make
consummation of the Merger illegal;
(e) by either Investor or Prospect Medical Systems if any required
approval of the Med-Search stockholders shall not have been obtained by July 31,
1996;
(f) by either Investor or Med-Search if the unanimous approval of the
Prospect Medical Systems stockholders shall not have been obtained by July 31,
1996;
(g) by Prospect Medical Systems if Section 368(a)(2)(E)(ii) of the
Code cannot be satisfied as a result of dissenting stockholders of Prospect
Medical Systems;
(h) by Investor or Med-Search if any condition to Med-Search's
obligation to complete the Merger has not been satisfied or waived by
Med-Search;
(i) by Investor or Prospect Medical Systems if any condition to
Prospect Medical Systems' obligation to complete the Merger has not been
satisfied or waived by Prospect Medical Systems; and
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(j) by Investor or Prospect Medical Systems if the HealthNet or
Franklin litigation, as set forth more fully on Exhibit D hereto, have not been
settled or otherwise resolved.
11.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Prospect Medical Systems or Med-Search as provided in Section 11.1,
this Agreement and the Certificate of Merger shall forthwith become void and
there shall be no liability or obligation on the part of Med-Search or Prospect
Medical Systems or their respective officers or directors except for (i) the
last sentence of Section 6.1, and (ii) the provisions of Article 10, and except
to the extent that such termination results from the breach by a party hereto of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
11.3 AMENDMENT. This Agreement may be amended by the parties hereto, at any
time before or after approval of matters presented in connection with the Merger
by the stockholders of Prospect Medical Systems, Med-Search and MS Acquisition
Corporation but, after any such stockholder approval, no amendment shall be made
which by law requires the further approval of stockholders without obtaining
such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
11.4 EXTENSION, WAIVER. At any time prior to the Effective Time, any party
hereto, by such corporate action as shall be appropriate, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other act of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE 12
GENERAL
12.1 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid by telecopy, or by courier
service, as follows:
If to Med-Search, to:
Med-Search, Inc.
00000 Xxxxx Xxxxx, Xxxxx X
Xxxxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxxx
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With a copy to:
Law Offices of Xxxxx X. Xxxxx
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
If to Prospect Medical Systems, to:
Prospect Medical Systems, Inc.
00000 Xxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attention: Xxxxx Xx Xxxxxx, M.D.
With a copy to:
Xxxxxx & Parks
000 X. Xxxxx Xx., Xxxx 000
Xxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, Esq.
If to Investor, to:
Xxxxx X. Xxxxxx, M.D.
000 Xxxxxxxxxx Xxxx.
Xxxxxxx Xxxxxxxxx, XX 00000
With a copy to:
Xxxxxx & Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx, Esq.
If to Xxxxxxx Xxxxx or the Estate of Xxxxxx Xxxxx, to:
Xxxxxxx Xxxxx
0000 Xxx Xxxxxx, Xxxxxxxxx, Xxxxx 000
Xxxx Xxxxx, XX 00000
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With a copy to:
Law Offices of Xxxxxxx X. Xxxxxxxx
Xxx Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
12.2 HEADINGS. The headings of the several sections of this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
12.3 COUNTERPARTS. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
12.4 BINDING NATURE. This Agreement shall be binding upon and inure to the
benefit of the parties hereto. Neither Med-Search, MS Acquisition Corporation
nor Prospect Medical Systems may assign or transfer any rights under this
Agreement. Investor shall be entitled to assign his rights to this Agreement to
participants in the Private Placement.
12.5 MERGER OF DOCUMENTS. This Agreement and all agreements and documents
contemplated hereby constitute one agreement and are interdependent upon each
other in an respects.
12.6 INTEGRATION. 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.
12.7 INCORPORATION OF EXHIBITS. All Exhibits attached hereto are by this
reference incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
12.8 GOOD FAITH. Each of the parties hereto agrees that it shall act in
good faith in an attempt to cause all the conditions precedent to their
respective obligations to be satisfied.
12.9 APPLICABLE LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of California as applied to
contracts entered into solely between residents of, and to be performed entirely
in, such state.
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12.10 DISPUTE. The parties acknowledge that the transactions
contemplated by this Agreement are of a special, unique and extraordinary
character, which gives this Agreement a peculiar value, the loss of which cannot
be reasonably or adequately compensated in damages in an action at law, and a
breach by any party of the provisions of this Agreement will cause irreparable
injury. It is, therefore, expressly acknowledged that this Agreement may be
enforced by the parties and by Investor by injunction and other equitable
remedies, without bond. Such relief shall not be exclusive, but shall be in
addition to any other available rights or remedies. If injunctive relief is not
sought, any controversy or claim arising out of or relating to this Agreement,
or breach thereof, including without limitation claims against either party, its
affiliates, employees, professionals, officers or directors shall be settled by
binding arbitration in Los Angeles, California, in accordance with the
Commercial Rules of the American Arbitration Association. The arbitrator shall
be an active member of the California bar. In the proceeding, the arbitrator
shall apply California substantive law and the California Evidence Code, except
that the arbitrator's authority in awarding damages shall be interpreted under
New York law. THE PARTIES AGREE THAT THE ARBITRATOR SHALL HAVE NO AUTHORITY TO
AWARD PUNITIVE DAMAGES, AND THE PARTIES HAVE BEEN ADVISED TO SEEK COUNSEL
CONCERNING THE POSSIBLE WAIVER BY THE PARTIES OF CERTAIN RIGHTS OTHERWISE
AVAILABLE AS A CONSEQUENCE OF SUCH AGREEMENT. The arbitrator shall prepare an
award in writing, which shall include factual findings and any legal conclusions
on which the decision is based. Judgment upon any award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof. In any
such proceeding, the prevailing party shall be entitled, in addition to any
other relief awarded or adjudged, such sum as the Arbitrator(s) may fix as and
for reasonable attorneys' fees and costs, and the same shall be included in the
award and any judgment.
12.11 SEVERABILITY. If for any reason whatsoever, any one or more of
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
12.12 THIRD PARTY BENEFICIARIES. Except as expressly set forth herein,
no provision of this Agreement, including the Exhibits and Schedules hereto, is
intended or should be construed to create any third party beneficiaries or to
give any rights, including rights of subrogation, to any person other than the
parties to this Agreement. Notwithstanding the foregoing, Med-Search and
Prospect Medical Systems each hereby agree and acknowledge that Investor is
relying on their respective representations in Articles 3 and 4 and that
Investor or his investor group are relying on the same representations for their
investment in the Med-Search Private Placement.
12.13 BEST EFFORTS; FURTHER ASSURANCES. Subject to the terms and
conditions of this Agreement, each party shall use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable laws and regulations
to consummate the transactions contemplated by this Agreement as promptly as
possible. The parties hereto shall do and perform or cause to be done and
performed all such further actions and things and shall execute and deliver all
such other agreements, certificates, instruments or documents as any other party
hereby may reasonably request in order to carry out the intent and purposes of
this Agreement and the consummation of the transactions contemplated hereby.
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IN WITNESS WHEREOF, Med-Search, MS Acquisition Corporation and Prospect
Medical Systems have caused this Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first above written.
MED-SEARCH, INC. MED-SEARCH ACQUISITION
CORPORATION
By: /s/ X. X. XXXXXXXXXX By: /s/ X. X. XXXXXXXXXX
-------------------------------- --------------------------------
Its: President Its: President
------------------------------- -------------------------------
PROSPECT MEDICAL SYSTEMS, INC.
By: /s/ Xxxxx Xx Xxxxxx
-------------------------------------
Its:
------------------------------------
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The following signatory enters into this Agreement as to the representations and
warranties set forth in Articles 3 and 4, and the additional agreements set
forth in Articles 5 and 6, relating to Prospect Medical Group and Suncrest, as
the case may be, only.
XXXXX XX XXXXXX, M.D.
/s/ XXXXX XX XXXXXX
------------------------------------
XXXXXXX XXXXX THE ESTATE OF XXXXXX X. XXXXX, M.D.
/s/ XXXXXXX XXXXX By: /s/ XXXXXXX XXXXX
------------------------------------ --------------------------------
Its: Representative
SUNCREST MEDICAL GROUP, INC.
By: /s/ XXXXXXX XXXXX
-------------------------------------
Its: Director
------------------------------------
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EXHIBITS TO
AGREEMENT AND PLAN OF REORGANIZATION(1)
Exhibit A Certificate of Merger
Exhibit B Asset Purchase Agreement
Exhibit C Investment Agreement -- filed herewith as Exhibit 10.6
Exhibit D Prospect Management Agreement -- filed herewith as Exhibit
10.1
Exhibit E Med-Search Litigation
Exhibit F Issuance of Securities
Exhibit G Acquisitions
Exhibit F Consulting Agreements
(1) The Registrant hereby undertakes to provide to the Securities and Exchange
Commission upon request copies of any of the exhibits listed above not
otherwise filed with this Form S-1 Registration Statement as noted above.
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