Exhibit 10.7
SECOND AMENDED AND RESTATED
ASSIGNABLE OPTION AGREEMENT
THIS SECOND AMENDED AND RESTATED ASSIGNABLE
OPTION AGREEMENT (this “ Agreement ”) is effective as of
the 1 st of
June, 2007, by and among Prospect Medical Systems, Inc., a Delaware
corporation (“ PMS
”), Prospect Medical Group, Inc., a California professional
corporation (“ PMG
”), and Jacob Y. Terner, M.D. (“ Shareholder ”), with reference to
the following facts:
RECITALS
A.
PMG owns and operates a professional corporation that is organized
and operated as a medical group and an independent practice
association (the “ Practice ”).
B.
All of the issued and outstanding shares of PMG are owned by
Shareholder.
C.
Pursuant to the Assignable Option Agreement dated as of January 13,
2000, among the parties hereto (as amended or otherwise
modified prior to the date hereof, the Prior Assignable Option Agreement
”), PMG and Shareholder granted to PMS and PMS acquired from
PMG and Shareholder an assignable option to purchase all of the
assets of PMG and the right to designate the purchaser (“
Successor Physician
”) of all or part of the issued and outstanding stock in
PMG. When used in this Agreement, the term “
Assets ” shall mean
all of PMG’s and Shareholder’s right, title, interest
and estate in and to all the assets of every kind and description
used in or pertaining to the Practice, including but not limited to
the assets set forth on Exhibit A . When used in
this Agreement, the term “ Stock ” shall mean all of
Shareholder’s right, title, interest and estate in and to all
of the issued and outstanding stock in PMG, including any rights to
any additional stock, preemptive rights, warrants, and the like, as
set forth on Exhibit B .
D.
PMS, PMG and Shareholder desire to enter into this Agreement to
incorporate within the terms, conditions and provisions of one
agreement all of the terms, conditions and provisions governing
assignable options to purchase all of the Assets and the right to
designate the Successor Physician of all or part of the issued and
outstanding Stock and to amend and restate the terms, conditions
and provisions set forth in the Prior Assignable Option
Agreement.
NOW, THEREFORE, in
consideration of the foregoing promises and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, PMS, PMG and Shareholder agree to
amend and restate the Prior Assignable Option Agreement in its
entirety to read as follows:
1.
Grant of Option .
1.1
PMG hereby grants to PMS an assignable option to purchase all or
any part of the Assets (the “ Assets Option ”), on the terms
and subject to the conditions set forth in this Agreement.
1.2
PMG and Shareholder hereby grant to PMS, the assignable right to
designate a Successor Physician or Successor Physicians, which
person or persons must be duly licensed physicians in the State of
California or otherwise permitted by law to be a shareholder in
a
professional corporation, to purchase all or
part of the Stock (the “ Stock Option ”), on the terms and
subject to the conditions set forth herein. In its sole
discretion, PMS may designate the amount of Stock which is to be
purchased. The Assets Option and the Stock Option are
collectively referred to herein as the “ Option .”
1.3
PMG and Shareholder represent and warrant that as of the day and
year first above written and during the term of this Agreement,
Exhibit A and Exhibit B are true and complete
listings of the Assets and Stock, respectively, as revised from
time to time pursuant to this Agreement.
1.4
Except as set forth in the Credit Succession Agreement, effective
June 1, 2007, by and among PMS, Sierra Medical Management,
Inc., a Delaware corporation (“ SMM ”), ProMed Health Care
Administrators, a California corporation (“ PHCA ”; and together with PMS and
SMM, each a “ Management
Company ” and collectively, the “ Management Companies ”), Prospect
Hospital Advisory Services, Inc., a Delaware corporation (
“PHA” ), Prospect Advantage Network, Inc., a
California corporation ( “PAN” ) and ProMed
Health Services Company, a California corporation (
“PHS” ), and together with PHA and PAN, each a
“ Non-Management
Subsidiary ” and collectively, the “
Non-Management Subsidiaries
”, PMG, Sierra Primary Care Medical Group, A Medical
Corporation, a California professional corporation (“
Sierra Primary ”),
Santa Ana/Tustin Physicians Group, Inc., a California professional
corporation (“ Santa
Ana/Tustin ”), Pegasus Medical Group, Inc., a
California professional corporation (“ Pegasus ”), Antelope Valley
Medical Associates, Inc., a California professional corporation
(“ Antelope ”),
Nuestra Familia Medical Group, Inc., a California professional
corporation (“ Nuestra ”), Prospect Health
Source Medical Group, Inc., a California professional corporation
(“ Prospect Health
”), Prospect Professional Care Medical Group, Inc., a
California professional corporation (“ Prospect Professional ”),
Prospect NWOC Medical Group, Inc., a California professional
corporation (“ Prospect
NWOC ”), APAC Medical Group, Inc., a California
professional corporation (“ APAC ”), StarCare Medical Group,
Inc., a California professional corporation (“ StarCare ”), Genesis Healthcare
of Southern California, Inc., a Medical Group, a California
professional corporation ( “Genesis” ), Prospect
Physician Associates, Inc., a California professional corporation (
“ Prospect Physician ” ), Pomona Valley
Medical Group, Inc., a California professional corporation (
“ Pomona Valley ” ), Upland Medical
Group, A Professional Medical Corporation, a California
professional corporation ( “ Upland ” ;
and together with PMG, Sierra Primary, Santa Ana/Tustin, Pegasus,
Antelope, Nuestra, Prospect Health, Prospect Professional, Prospect
NWOC, APAC, Genesis, Prospect Physician, and Pomona Valley, each a
“ Professional
Corporation ” and collectively, the “
Professional Corporations
”), PC Shareholders (as defined therein, the “
PC Shareholders
” ) and Banc of America Capital Solutions LLC and Bank
of America, N.A. (each, a “ Lender ”) (as the same may be
amended, supplemented, restated or otherwise modified from time to
time, the “ Credit Succession
Agreement ”), PMG shall not recognize any share
transfer or other action not in compliance with the terms of this
Agreement. When used in this Agreement, the term “
Applicable Management
Company ” shall mean (i) with respect Sierra
Primary, Pegasus or Antelope, SMM (ii) with respect to
PMG, Prospect Health, Prospect Professional, Nuestra,
Prospect NWOC, Santa Ana/Tustin, APAC or StarCare or Genesis, PMS
(iii) with respect to Pomona Valley and Upland, PHCA.
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2.
Term of Agreement . The term of this Agreement commences as
of the day and year first above written and continues for thirty
(30) years (“ Term
”). So long as the term of that certain Amended
and Restated Management Services Agreement, made and entered into
as of June 4, 1996, by and between PMS and PMG (as amended,
supplemented, restated or otherwise modified from time to time, the
“ Management Services
Agreement ”) is automatically extended pursuant
thereto, the term of this Agreement shall be automatically extended
for additional coextensive terms of ten (10) years each. In
the event that the Management Services Agreement is terminated
pursuant to its terms, this Agreement shall terminate upon the
effective date of termination of said Management Services
Agreement.
3.
Option Price . The purchase price for the Option (the
“ Option Price
”) is One Hundred Dollars ($100) and PMG and Shareholder
acknowledge receipt of such payment.
4.
Exercise of Option .
4.1
During the Term of this Agreement, PMS may elect to exercise the
Option at any time. In the event of an election by PMS to
exercise the Option, PMS may exercise either the Assets Option or
the Stock Option, or both, at PMS’s sole
discretion.
4.2
Notwithstanding the provisions of Section 4.1 above, if the
Management Services Agreement is terminated by either PMG or PMS,
for any reason, PMS’s right to exercise the Option is
automatically and immediately exercised as of the termination date
of the Management Services Agreement such that PMS may exercise
either the Assets Option or the Stock Option, or both, at such
time.
4.3
To the extent that the Assets Option is exercised by PMS, PMS will
send PMG a written notice (the “ Assets Exercise Notice ”)
specifying the Assets to be purchased. PMS may exercise the
Assets Option as many times as PMS elects in its sole
discretion.
4.4
To the extent that the Stock Option is exercised by PMS, PMS will
send PMG a written notice (the “ Stock Exercise Notice ”)
specifying the Stock to be purchased. PMS may designate the
Successor Physician(s) who will exercise the Stock Option as many
times as PMS elects in its sole discretion.
4.5
The Assets Option and the Stock Option are independent of each
other, and can be exercised at different times during the
Term.
4.6
PMS may cancel any Assets Exercise Notice or Stock Exercise Notice
at any time.
4.7
PMG and Shareholder shall cooperate with PMS in any due diligence,
and PMG and Shareholder shall cause each other Professional
Corporation and PC Shareholder to cooperate with PMS or any
Applicable Management Company in any due diligence.
4.8
PMG and Shareholder shall execute and deliver such agreements,
documents and instruments at Closing (as defined below) as PMS may
request evidencing or relating to the purchase of Assets or Stock,
as the case may be, each in form and substance satisfactory to
PMS,
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including without limitation, the
Non-Competition Agreement in the form of Exhibit C attached
hereto.
5.
Assignment of the Option . PMS may elect to assign
either the Assets Option or the Stock Option or both to any person,
by a written assignment, signed by both PMS and the assignee, which
designates the Assets and/or Stock. The assignee shall agree
as a condition of the assignment to be bound by the terms of this
Agreement. Thereafter, only the assignee named in the
assignment shall have the right to exercise the applicable Assets
Option and/or the Stock Option as to the designated Assets and/or
Stock, and that assignee, rather than PMS, shall enter into a
purchase agreement upon exercise of the Assets Option and/or the
Stock Option, as applicable. Written notice of any such
assignment shall be given by PMS to PMG and Shareholder within a
reasonable time period following execution of any assignment
pursuant to this Agreement. When the context so requires in
this Agreement, the term “PMS” shall be deemed to refer
to an assignee holding an assignment of an Asset Option or Stock
Option, and the terms “party” and “parties”
shall be deemed to include that assignee.
6.
Purchase Price of the Assets or Stock .
6.1
Purchase Price .
(a)
Assets Purchase Price . The purchase price for
the Assets to be purchased pursuant to the exercise of the Assets
Option shall be $1,000 (“ Assets Purchase Price ”).
The purchase price of any partial purchase of the Assets shall be a
pro-rata percentage of the full Assets Purchase Price.
(b)
Stock Purchase Price . The purchase price for the
Stock to be purchased pursuant to the exercise of the Stock Option
shall be $1,000 (“ Stock Purchase Price ”).
The purchase price of less than all of the issued and outstanding
Stock is a pro-rata percentage of the full Stock Purchase
Price.
6.2
Payment . For the Assets, PMS shall pay to PMG the Assets
Purchase Price at Closing (as defined below) in the form of
immediately available funds transferred by wire to an account at a
financial institution designated by PMG. For the Stock, PMS
shall cause the Successor Physician to pay the Shareholder the
Stock Purchase Price.
6.3
Closing . The transactions contemplated by this
Agreement are to close forty-five (45) days after the date of
either the Assets Exercise Notice or the Stock Exercise Notice, as
the case may be (“ Closing ”), unless extended by
PMS.
7.
Additional Obligations of PMG and Shareholder .
7.1
Affirmative Covenants . To the extent that PMG or
Shareholder participate in the Practice and own, control, or use
the Assets, PMG and Shareholder shall, and shall cause each other
Professional Corporation and PC Shareholder to::
(a)
Conduct of Practice . Conduct PMG’s and each
such other Professional Corporation’s business efficiently
and without voluntary interruption and preserve all rights,
privileges, and franchises held by PMG and each such other
Professional Corporation and by
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PMG’s Practice and the practice of each
such other Professional Corporation, including the maintenance of
all contracts, copyrights, trademarks, licenses, registrations,
etc.;
(b)
Use . Make use of the Assets and the assets of each
such other Professional Corporation with reasonable care to prevent
diminution in value of the Practice and the practice of each such
other Professional Corporation and the Assets and the assets of
each such other Professional Corporation, and keep the Assets and
the assets of each such other Professional Corporation in good
repair;
(c)
Value . Perform all acts necessary to maintain,
preserve, and protect the Assets and the assets of each such other
Professional Corporation, and maintain fire and extended coverage
insurance on the Assets in the amounts and under policies
acceptable to PMS and the Applicable Management Companies, and
provide PMS and the Applicable Management Companies with the
original policies and certificates at PMS’s or the Applicable
Management Company’s request;
(d)
Financing Statements . Execute and deliver to PMS and
the Applicable Management Companies, all financing statements and
other documents that PMS or any Applicable Management Company
requests, in order to put third parties on notice of this
Agreement;
(e)
Access . Permit PMS and each Applicable Management
Company, its representatives, and its agents to inspect the Assets
and the assets of the each other Professional Corporations at any
time, and to make copies of records pertaining to the Assets and
the assets of each other Professional Corporation, at reasonable
times at the applicable Management Company’s
request;
(f)
Reports . Furnish PMS and the Applicable Management
Companies any reports relating to the Assets and the assets of each
other Professional Corporation at PMS’s or at the Applicable
Management Company’s request;
(g)
Defaults . Notify PMS and the Applicable Management
Companies promptly in writing of any default, potential default, or
any development that might have a material adverse effect on the
Assets, the assets of each other Professional Corporation, the
Stock or the equity interest in any other Professional Corporation,
or the Practice or any practice of any other Professional
Corporation, or of any litigation that may have a material adverse
effect on the Practice or any practice of any other Professional
Corporation;
(h)
Expenses . Pay all expenses, including
attorneys’ fees, incurred by PMS in the perfection,
preservation, realization, enforcement, and exercise of its rights
under this Agreement, including but not limited to accounting,
correspondence, collection efforts, filing, recording, and
recordkeeping;
(i)
Indemnity . Indemnify PMS against losses, liabilities,
or damages, costs and expenses of any and, including reasonable
attorneys’ fees, caused to PMS by reason of its interest in
the Assets and/or the Stock;
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(j)
Taxes . Pay promptly when due all taxes and
assessments owed in connection with the Assets and the assets of
each other Professional Corporation and the Stock and the equity
interest in each other Professional Corporation; and
(k)
Delivery of Certificates . Deliver to PMS, all
certificates heretofore issued representing all of the shares of
PMG’s capital stock held of record or beneficially owned by
Shareholder, and each certificate hereafter issued representing any
share of the PMG’s’ capital stock, with each
certificate endorsed in blank for transfer. Notwithstanding
the foregoing, this Section 7.1(k) shall only apply in
the event that the Credit Succession Agreement is no longer in
effect.
7.2
Negative Covenants . Except as required under the
Credit Succession Agreement or under the Loan and Security
Agreement, dated as of the date hereof, among Holdings, the
Management Companies, the Non-Management Companies, the
Professional Corporations and the Lender, without the prior written
consent of the PMS or the Applicable Management Companies, PMG and
Shareholder shall not (and shall not permit any other Professional
Corporation or PC Shareholder to):
(a)
Transfer . Sell, lease, transfer, or otherwise dispose
of the Assets or the assets of any other Professional Corporation
or Stock or the equity interest in any other Professional
Corporation;
(b)
Debt . Incur, guarantee, assume or otherwise become
liable for any borrowing or increase any existing indebtedness; or
discharge or cancel any debt owed to PMG or any other Professional
Corporation;
(c)
No Further Hypothecation . Pledge, hypothecate,
encumber, redeem or dispose of the Assets or any of the assets of
any other Professional Corporation, the Stock or any interest
therein, or any equity interest in any other Professional
Corporation or an interest therein until all of PMG’s
obligations under this Agreement have been fully satisfied or the
Assets or the Stock has been released;
(d)
Location . Move the Assets from their present
locations without the prior written consent of the PMS;
(e)
Use . Use the Assets, or the assets of other
Professional Corporations, or the Stock, or any equity interest in
any other Professional Corporations, for any unlawful purpose or in
any way that would void any effective insurance;
(f)
Name and Location Changes . Change the name or place
of business or use a fictitious business name without the prior
express consent of PMS; and
(g)
Issuance of Stock; Change in Ownership; Mergers and
Consolidation . Permit any issuance of Stock, any equity
interest in any other Professional Corporation, other equity, or
debt; permit any change in the composition or respective percentage
ownership of PMG or any other Professional Corporation; permit PMG
or any other Professional Corporation to be merged, consolidated or
otherwise reorganized with or into any other
corporation,
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partnership, trade, business, or the like;
amend or otherwise modify its articles of incorporation and bylaws;
dissolve; or enter into any agreement with any person to do any of
the foregoing.
8.
Confidentiality . The parties shall use all good faith
efforts to keep the contents of this Agreement and all other
aspects of the negotiations preceding execution of this Agreement
confidential. Unless required by law, PMS, PMG and
Shareholder shall not disclose the contents of this Agreement or
the negotiations leading to this Agreement to third parties without
the prior written consent of the other party. PMS shall
ensure that all of the assignees likewise comply with the
obligations of confidentiality imposed by this Section ,
except that PMS and the assignees may disclose the contents of such
to their respective agents, representatives, contractors, and
employees to the extent necessary to exercise their respective
rights or perform their respective obligations
hereunder.
9.
General .
9.1
Compliance with Law . PMG and Shareholder shall, and
shall cause each other Professional Corporation to, comply with all
applicable requirements of the Joint Commission on the
Accreditation of Healthcare Organizations, the Medicare and
Medicaid programs, applicable state law and regulations, and other
licensing and accreditation authorities.
9.2
Relationship of Parties . In the exercise of their
respective rights and the performance of their respective
obligations under this Agreement, PMG and Shareholder, on the one
hand, and PMS (or a
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