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Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 21, 1996
-----------------------------
FPA MEDICAL MANAGEMENT, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-24276 33-0604264
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(State or Other Juris- (Commission File (IRS Employer
diction of Incorporation) Number) Identification No.)
2878 Camino del Rio South
Suite 301
San Diego, California 92108
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(Address of Principal (Zip Code)
Executive Offices)
(619) 295-7005
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
On June 21, 1996, the Registrant completed the acquisition of all of the
outstanding stock of Physicians First, Inc., a wholly owned subsidiary of
Physician Corporation of America ("PCA") operating 40 primary care clinics in
Florida. The clinics have approximately 125 primary care physicians which
provide services to approximately 80,000 enrollees in PCA's health plans. As
consideration for the acquisition and a related agreement not to compete, the
Registrant paid approximately $23 million, comprised of $15 million in a note
payable by the Registrant, 525,000 shares of the Registrant's common stock and
warrants to purchase up to 250,000 shares of the Registrant's common stock.
Item 5. Other Events.
On June 28, 1996, the Registrant entered into a stock and note purchase
agreement with Foundation Health Corporation and certain of its affiliates
(collectively, "Foundation") to acquire all of the outstanding stock of
Foundation Health Medical Services, a California corporation ("FHMS") and
FHMG/TDMC Medical Group, a California Professional Corporation ("Holding
Company"). FHMS provides facilities management, non-physician healthcare
professionals and other administrative and management services to Holding
Company and its subsidiaries. Holding Company holds the stock of Foundation
Health Medical Group, Inc., a California Professional Corporation and Thomas
Davis Medical Centers, P.C., an Arizona Professional Corporation. The Registrant
also acquired from Foundation all of the outstanding stock of two affiliated
independent practice associations, one in Arizona and one in Florida. As
consideration for the acquisitions, the Registrant is expected to pay
approximately $220 million, comprised of $5 million in cash, $75 million in
common stock of the Registrant and $140 million in notes. The source of the cash
payment is expected to be working capital. The acquisition will be accounted
using the purchase method of accounting. The acquisition is expected to close on
or about October 1, 1996, subject to the receipt of regulatory approvals and
satisfaction of certain other conditions.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of businesses acquired (It is impracticable
for the Registrant to provide the required financial statements; the
Registrant will file such financial statements as soon as practicable, but
not later than 60 days after a Report on Form 8-K with respect to the
PCA acquisition must be filed.).
(b) Pro forma financial information (It is impracticable for the
Registrant to provide the required financial statements; the Registrant will
file such financial statements as soon as practicable, but not later than 60
days after a Report on Form 8-K with respect to the PCA acquisition must be
filed.).
(c) Exhibits
10 Stock and Note Purchase Agreement among, inter alia, the
Registrant and Foundation, dated as of June 28, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FPA MEDICAL MANAGEMENT, INC.
(Registrant)
/s/ Steven M. Lash
-------------------------------------------------
Date: July 2, 1996 By: Steven M. Lash
Title: Executive Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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10 Stock and Note Purchase Agreement among, inter alia,
the Registrant and Foundation, dated as of June 28,
1996.
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EXHIBIT 10
STOCK AND NOTE PURCHASE AGREEMENT
by and between
FOUNDATION HEALTH CORPORATION, a Delaware corporation
as "Seller"
JONATHAN H. SCHEFF, M.D.
as "Selling Shareholder"
on the one hand,
and
FPA MEDICAL MANAGEMENT, INC., a Delaware corporation
as "FPA"
FPA MEDICAL MANAGEMENT OF CALIFORNIA, INC.,
a Delaware corporation
as "Purchasing Subsidiary"
and
FPA INDEPENDENT PRACTICE ASSOCIATION,
An Osteopathic Corporation
as "Purchasing Shareholder"
on the other hand
Dated as of June 28, 1996
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS.......................................... 2
1.1 Defined Terms........................................ 2
1.2 Other Defined Terms.................................. 6
ARTICLE 2 PURCHASE AND SALE OF FHMS SHARES AND NOTES........... 7
2.1 Description of FHMS Shares and Notes................. 7
2.2 Sale of FHMS Shares by Seller........................ 7
2.3 FHMS Share Purchase Price............................ 7
2.4 Sale of FHMS Indebtedness by Seller.................. 8
2.5 FHMS Indebtedness Purchase Price..................... 9
2.6 Transfer Taxes and Fees.............................. 9
ARTICLE 3 APPOINTMENT OF DESIGNEE - SALE AND PURCHASE OF
HOLDING COMPANY SHARES AND NOTES.......................... 9
3.1 Appointment of Purchasing Shareholder as Designee.... 9
3.2 Description of Shares and Notes...................... 9
3.3 Exercise of Option................................... 9
3.4 Sale of Holding Company Indebtedness by Seller....... 10
3.5 Holding Company Indebtedness Purchase Price.......... 10
ARTICLE 4 CLOSING.............................................. 10
4.1 Closing.............................................. 10
4.2 Conveyances at Closing............................... 10
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER............. 12
5.1 Organization......................................... 12
5.2 Authorization........................................ 12
5.3 No Material Adverse Change........................... 12
5.4 Leased Real Property................................. 12
5.5 Contracts and Commitments............................ 13
5.6 Permits and Governmental Filings..................... 14
5.7 No Conflict or Violation............................. 15
5.8 Financial Statements................................. 15
5.9 Litigation........................................... 15
5.10 Compensation......................................... 15
5.11 Compliance with Laws................................. 15
5.12 Employee Benefits Matters............................ 16
5.13 Insurance............................................ 18
5.14 No Undisclosed Liabilities........................... 18
5.15 Capital Structure.................................... 19
5.16 Real Property........................................ 19
5.17 Taxes................................................ 19
5.18 Proprietary Rights................................... 20
5.19 Subsidiaries......................................... 20
5.20 Accounts Receivable.................................. 20
5.21 Brokers.............................................. 20
5.22 Certain Real Estate and Legal Matters................ 20
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ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF FPA AND
PURCHASING SUBSIDIARY...................................... 25
6.1 Organization of FPA and Purchasing Subsidiary........ 25
6.2 Authorization........................................ 26
6.3 No Conflict or Violation............................. 26
6.4 Permits and Governmental Filings..................... 26
6.5 Financial Statements................................. 27
6.6 SEC Documents........................................ 27
6.7 No Material Adverse Change........................... 28
6.8 Compliance with Laws................................. 28
6.9 Litigation........................................... 28
6.10 No Undisclosed Liabilities........................... 28
6.11 Capital Structure.................................... 28
ARTICLE 7 COVENANTS OF PARTIES HERETO.......................... 29
7.1 Further Assurances................................... 29
7.2 No Solicitation...................................... 29
7.3 Inspections.......................................... 29
7.4 Conduct of Business.................................. 30
7.5 Employee Matters..................................... 30
7.6 FPA's Covenant Not to Compete........................ 33
7.7 Purchase of Indebtedness;Post-Closing Adjustment..... 36
7.8 Preparation of the Proxy Statement................... 36
7.9 Stockholders Meeting................................. 37
7.10 Agreement to Vote Shares............................. 37
7.11 Surgery Center Referrals............................. 37
7.12 Disease State Management............................. 37
7.13 Real Estate Matters.................................. 38
7.14 Software Licenses.................................... 39
ARTICLE 8 CONDITIONS TO SELLER'S AND SELLING SHAREHOLDER'S
OBLIGATIONS................................................ 39
8.1 Representations, Warranties and Covenants............ 39
8.2 No Proceedings, Litigation or Laws................... 39
8.3 Opinion of Counsel................................... 39
8.4 Certificates and Corporate Documents................. 39
8.5 Registration Rights Agreement........................ 40
8.6 Guaranties........................................... 40
8.7 Intentionally Deleted................................ 40
8.8 Intentionally Deleted................................ 40
8.9 Master Lease Assignment.............................. 40
8.10 Professional Group Provider Agreements............... 40
8.11 Purchase Price....................................... 40
8.12 HSR Act.............................................. 40
8.13 Governmental Approvals............................... 41
8.14 Related Agreements................................... 41
8.15 Consents............................................. 41
8.16 No Material Adverse Changes.......................... 41
8.17 Transition Agreement................................. 41
8.18 Releases............................................. 41
8.19 Pledge Agreements.................................... 41
8.20 Security Agreement................................... 42
8.21 Board Approval....................................... 42
8.22 Tax Opinion.......................................... 42
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ARTICLE 9 CONDITIONS TO FPA'S OBLIGATIONS...................... 42
9.1 Representations, Warranties and Covenants............ 42
9.2 No Proceedings, Litigation or Laws................... 43
9.3 Opinion of Counsel................................... 43
9.4 Certificates and Corporate Documents................. 43
9.5 Other Documents...................................... 43
9.6 HSR Act.............................................. 43
9.7 Governmental Approvals............................... 43
9.8 Intentionally deleted................................ 43
9.9 Master Lease Assignment.............................. 44
9.10 Professional Group Provider Agreements............... 44
9.11 Related Agreements................................... 44
9.12 Consents............................................. 44
9.13 Material Adverse Changes............................. 44
9.14 Pre-Closing Transactions............................. 44
9.15 Transition Agreement................................. 45
9.16 Registration Rights Agreement........................ 45
9.17 Notice of Designee................................... 45
9.18 Board Approval....................................... 45
9.19 Stockholder Approval................................. 45
9.20 Voting Agreement..................................... 46
9.21 Physicians........................................... 46
9.22 Real Estate Matters.................................. 46
ARTICLE 10 ACTIONS BY SELLER AND FPA AFTER THE CLOSING......... 46
10.1 Books and Records.................................... 46
10.2 Taxes................................................ 47
10.3 338(h)(10) Election.................................. 47
10.4 Future Contractual Alliances......................... 47
10.5 Certain Obligations Regarding Employees.............. 47
10.6 Foundation Name...................................... 48
10.7 Reimbursement For Certain Tax Matters................ 49
10.8 Covenant............................................. 51
10.9 Solicitation of Employees............................ 52
ARTICLE 11 SURVIVAL AND INDEMNIFICATION........................ 52
11.1 Survival............................................. 52
11.2 No Other Representations............................. 52
11.3 Indemnification by Seller............................ 53
11.4 Limitations on Indemnity............................. 53
11.5 Indemnification by FPA............................... 54
11.6 Notice and Defense of Third-Party Claims............. 54
11.7 Limitation........................................... 55
11.8 Exclusivity.......................................... 55
11.9 Right of Set-off..................................... 55
ARTICLE 12 MISCELLANEOUS....................................... 56
12.1 Termination.......................................... 56
12.2 Assignment and No Third Party Beneficiaries.......... 57
12.3 Notices.............................................. 57
12.4 Choice of Law........................................ 58
12.5 Entire Agreement; Amendments and Waivers............. 59
12.6 Counterparts......................................... 59
12.7 Expenses............................................. 59
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12.8 Invalidity........................................... 59
12.9 Publicity............................................ 59
12.10 Schedules............................................ 60
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DISCLOSURE SCHEDULE
1.1(a) Care Centers
1.1(b) Holding Company and FHMS Financial Statements/Pro Forma
Consolidated Balance Sheet
2.1 FHMS Share Ownership
3.2 Holding Company Share Ownership
5.3 Material Adverse Changes
5.4 Leased Real Property
5.5 Material Contracts
5.6(a) Seller/Holding Company Permits
5.6(b) Seller/Holding Company Filings
5.9 Litigation
5.10 Compensation
5.12 Employee Benefit Matters
5.13 Insurance Policies
5.14 Liabilities
5.15 Certain Rights Relating to Shares
5.19 Subsidiaries
5.22(e) Pending Transfers
6.3 No Conflicts
6.4(a) FPA Permits
6.4(b) FPA Filings
6.7 Material Adverse Changes
6.9 Litigation
6.10 Liabilities
6.11 Capital Structure
7.4 Conduct of Business
7.5(b) Employee Liabilities
7.14 License and Maintenance Agreements
8.14 Related Agreements
10.5 Retained Employee Obligations
10.7 Depreciation Deduction
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EXHIBITS
Exhibit A Letter Agreement Regarding Matching Contributions
Exhibit B Form of Professional Group Provider Agreement (CA)
Exhibit C Form of Professional Group Provider Agreement (AZ)
Exhibit D Term Sheet Regarding Bridge Note
Exhibit E Term Sheet Regarding Consolidated Note
Exhibit F Term Sheet Regarding Registration Rights
Exhibit G Term Sheet Regarding Guaranty
Exhibit H Reserved
Exhibit I Form of Master Lease Assignment
Exhibit J Term Sheet Regarding General Release
Exhibit K Term Sheet Regarding Pledge Agreements
Exhibit L Term Sheet Regarding Security Agreements
Exhibit M Term Sheet Regarding Voting Agreement
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EXHIBIT A
This Stock and Note Purchase Agreement, dated as of June 28, 1996 (the
"Agreement") is made by and between FPA MEDICAL MANAGEMENT, INC., a Delaware
--------- ----------------------------
corporation ("FPA"), FPA MEDICAL MANAGEMENT OF CALIFORNIA, INC., a Delaware
--- ------------------------------------------
corporation and a wholly-owned subsidiary of FPA ("Purchasing Subsidiary"), FPA
--------------------- ---
INDEPENDENT PRACTICE ASSOCIATION, An Osteopathic Corporation ("Purchasing
- -------------------------------- ----------
Shareholder"), JONATHAN H. SCHEFF, M.D., an individual ("Selling Shareholder")
- ----------- ------------------ -------------------
and FOUNDATION HEALTH CORPORATION, a Delaware corporation ("Seller").
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W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding shares of capital
stock of Foundation Health Medical Services, a California corporation, doing
business in Arizona as TDMC Medical Services Corporation ("FHMS");
----
WHEREAS, FHMS is engaged in the business of providing facilities management,
non-physician healthcare professionals and other administrative and management
services to Holding Company (as defined below) and its subsidiaries ("FHMS's
------
Business");
- --------
WHEREAS, FPA desires to buy from Seller and Seller desires to sell to FPA,
all of the outstanding capital stock of FHMS, on the terms and conditions set
forth in this Agreement;
WHEREAS, Selling Shareholder owns all of the issued and outstanding shares
of capital stock of FHMG/TDMC Medical Group, a California Professional
Corporation ("Holding Company");
---------------
WHEREAS, Holding Company is engaged in the business of holding the stock of
Foundation Health Medical Group, Inc., a California Professional Corporation
("FHMG") and Thomas Davis Medical Centers, P.C., an Arizona Professional
----
Corporation ("TDMC"), its professional corporation subsidiaries and providing
----
medical services through such subsidiaries' respective Practitioners (as defined
below) ("Holding Company's Business");
--------------------------
WHEREAS, Seller has the right, pursuant to that certain Share Ownership
Agreement (the "Share Ownership Agreement"), dated as of June 27, 1996, to name
-------------------------
a designee (the "Designee") who will have the option (the "Option") to purchase
-------- ------
all of the outstanding shares of capital stock of Holding Company;
WHEREAS, Purchasing Shareholder desires to be named the Designee by Seller
and Seller desires to name Purchasing Shareholder the Designee;
WHEREAS, Purchasing Shareholder desires to buy from Selling Shareholder
pursuant to the Option and Selling Shareholder desires to sell to Purchasing
Shareholder pursuant to the Option, all of the outstanding capital stock of
Holding Company, on the
<PAGE>
terms and conditions set forth in this Agreement and the Share Ownership
Agreement;
WHEREAS, Seller owns the FHMS Indebtedness and the Holding Company
Indebtedness (both as defined below);
WHEREAS, Purchasing Subsidiary desires to purchase the FHMS Indebtedness
and the Holding Company Indebtedness; and
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings.
"Affiliate" shall have the meaning set forth in the Securities Exchange Act
---------
of 1934, as amended, and the rules and regulations thereunder. When used in
relation to FPA or Purchasing Subsidiary, "Affiliate" shall include Purchasing
Shareholder.
"Businesses" shall mean FHMS's Business and Holding Company's Business,
----------
collectively.
"FPA Financial Statements" shall mean (i) the audited consolidated balance
------------------------
sheet of FPA dated as of December 31, 1995 and the related consolidated
statement of operations, stockholders' equity and cash flow for the fiscal year
then ended and (ii) the unaudited consolidated balance sheet of FPA dated as of
March 31, 1996, and the related consolidated statement of operations,
stockholders' equity and cash flow for the three-month period then ended.
"Care Centers" shall mean the health care centers and other facilities
------------
operated by Seller prior to the Closing which are listed on Schedule 1.1(a).
---------------
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
----
rules and regulations thereunder.
"Confidentiality Agreement" shall mean the letter agreement regarding
-------------------------
confidentiality dated June 4, 1996 between Seller and FPA.
"Contract" shall mean any agreement, contract, lease, note, purchase order,
--------
mortgage, indenture, security agreement, license,
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instrument or other contract or commitment, whether oral or written.
"Disclosure Schedule" shall mean, collectively, the schedules attached
-------------------
hereto which set forth the exceptions to the representations and warranties
contained in Articles 5 and 6 hereof and certain other information called for by
this Agreement. The Disclosure Schedule shall be prepared so as to make clear
the party hereto or the Affiliate of a party hereto to which the matters or
items listed thereon relate.
"Encumbrance" shall mean any claim, lien, pledge, option, charge, easement,
-----------
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, encumbrance or other right of third parties, whether
voluntarily incurred or arising by operation of law, and includes any existing
agreement to give any of the foregoing in the future, and any contingent sale or
other title retention agreement or lease in the nature thereof.
"Expiring Contract" shall mean any Contract which will expire, by its terms,
-----------------
on or before the Closing Date.
"Family and Senior Care, Inc." shall mean FPA's affiliate which has filed an
----------------------------
application for licensure as a limited licensed health care service plan under
the Knox-Keene Health Care Services Plan Act of 1975, as amended.
"FHCA" shall mean those Affiliates of Seller which offer benefit programs to
----
commercial groups, Governmental Authorities, individual members or other
sponsors of health care benefit plans and which are a party to a Professional
Group Provider Agreement.
"FHMS Financial Statements" shall mean the unaudited balance sheet of FHMS
-------------------------
dated as of March 31, 1996, attached as Schedule 1.1(b) hereto.
----------------
"Financial Statements" shall mean the Holding Company Financial Statements
--------------------
and the FHMS Financial Statements, collectively.
"Financial Statement Date" shall mean March 31, 1996.
------------------------
"GAAP" shall mean U.S. generally accepted accounting principles set forth in
----
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
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"Governmental Authority" shall mean any court, governmental agency,
----------------------
administrative authority or body, arbitrator or arbitration panel of the United
States or any state, county, city or other political subdivision thereof.
"Holding Company Financial Statements" shall mean the respective unaudited
------------------------------------
balance sheets of FHMG and TDMC dated as of March 31, 1996, attached as Schedule
--------
1.1(b) hereto.
- ------
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended, and the rules and regulations promulgated thereunder.
"including" or to "include" any item shall mean containing or to contain
--------- -------
such item as part of a whole, without any implied exclusion of other items.
"Intergroup of Arizona" shall mean Intergroup Prepaid Health Services of
---------------------
Arizona, Inc., doing business as Intergroup of Arizona, an Arizona corporation.
"knowledge" of a Person shall mean the actual knowledge of the Person if
---------
such Person is an individual, or if such Person is a corporation, shall mean the
actual knowledge of the member or members of senior management of such Person
(in the case of Seller, Daniel D. Crowley, Kirk A. Benson, Michael P. White, and
Jerry Newman and with respect to Section 5.22 only, Joe Erway and, in the case
------------
of FPA, Seth M. Flam, Steven Lash, James A. Lebovitz, and Sol Lizerbram) with
primary responsibility for the matters referred to, in both cases after
reasonable inquiry.
"Laws" shall mean all laws, statutes, ordinances, regulations, rules, codes,
----
orders, consent decrees, settlement agreements, and governmental requirements
(including any ruling or requirement having the effect of law) of any federal,
state or local government and any other governmental department or agency, and
any judgment, decision, decree, writ, injunction, award, ruling or order of any
Governmental Authority with jurisdiction.
"Leased Real Property" shall mean all real property leased or subleased by
--------------------
Seller, Holding Company or any of Holding Company's subsidiaries and used in the
Businesses.
"Liability" means any liability, including any indebtedness, any guaranty of
---------
indebtedness or obligations of any other Person, and any liability for Taxes.
"Management Agreement" shall mean, collectively (i) that certain Sublease
--------------------
and Management Agreement between FHMS and FHMG, dated as of May 12, 1993, as
amended and (ii) that certain Sublease and Management Agreement between FHMS and
TDMC, dated as of November 1, 1994, as amended.
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"Material Adverse Effect" or "Material Adverse Change" shall mean, with
----------------------- -----------------------
respect to either FHMS's Business, Holding Company's Business, FPA or Purchasing
Subsidiary, respectively, any material adverse effect on or change in their
respective condition (financial or other), business or results of operations, or
on the ability of FPA, Purchasing Subsidiary, Purchasing Shareholder, Seller or
Selling Shareholder to consummate the transactions contemplated hereby and by
the Related Agreements.
"Ordinary Course" shall mean the ordinary course of business consistent with
---------------
prior practice.
"Permits" shall mean all licenses, permits, franchises, approvals,
-------
authorizations, accreditations, provider numbers, consents or orders of, or
filings with, any Governmental Authority, necessary for the conduct of, or
relating to the operation of, either of the Businesses.
"Person" shall mean an individual, a partnership, a corporation, a trust, a
------
limited liability company or partnership, an unincorporated organization, a
Governmental Authority or any other entity.
"Professional Group Provider Agreements" shall mean, collectively, the
--------------------------------------
Professional Group Provider Agreement, in substantially the form of Exhibit B
hereto, to be entered into by and between FHCA and FHMG at the Closing and the
Professional Group Provider Agreement, in substantially the form of Exhibit C
hereto, to be entered into by and between FHCA and TDMC at the Closing.
"Practitioner" shall mean any licensed physician and surgeon, dentist,
------------
clinical psychologist, podiatrist, optometrist or paraprofessional employed by
Holding Company or any of its subsidiaries, who provides professional or
paraprofessional services in connection with Holding Company's Business.
"Related Agreements" shall mean all agreements set forth on Schedule 8.14.
------------------ -------------
"Representative" shall mean any officer, director, principal, attorney,
--------------
agent, employee or other representative.
"Tax" shall mean any federal, state, local, foreign or other tax, levy,
---
impost, fee, assessment or other government charge, including income, estimated
income, business occupation, property, payroll, personal property, sales,
transfer, use, employment, commercial rent, occupancy, franchise or withholding
taxes, and any premium, including interest, penalties and additions in
connection therewith.
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1.2 Other Defined Terms. The following terms shall have the meanings given
-------------------
in the Sections set forth below:
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Term Section
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Accounts 7.5(c)(ii)
Actions 5.9
Agent 3.1
Bridge Note 2.3(a)(iii)
Cash Payment 2.3(a)(i)
Closing 4.1
Closing Date 4.1
Closing Price 2.3(a)(ii)
Designee Recitals
Designee Consideration 3.1
Employee 5.10
Employee Benefit Plans 5.12(b)
Environmental Laws 5.22
ERISA 5.12(a)(i)
Exclusivity Period 7.2
FHMG Recitals
FHMG Agreement 5.6(c)
FHMS Recitals
FHMS Indebtedness 2.1
FHMS Indebtedness Purchase Price 2.5
FHMS Share Purchase Price 2.3(a)
FHMS Shares 2.1
FHMS's Business Recitals
FPA Common 2.3(a)(ii)
FPA SEC Documents 6.6
FPA's Savings Plans 7.5(c)(ii)
Foundation Name 10.6
Frozen 401(k) Plan 7.5(d)
Hazardous Materials 5.22
Holding Company Recitals
Holding Company Indebtedness 3.2
Holding Company Indebtedness Purchase Price 3.5
Holding Company Shares 3.2
Holding Company's Business Recitals
Indemnitee 11.4
Indemnified Person 11.6
Indemnifying Person 11.6
Insurance Policies 5.13
Leases 5.22
Losses 11.3
Master Lease Assignment 8.9
Material Contracts 5.5
Nasdaq NMS 2.3(a)(ii)
Non-Compete Period 7.6(a)
Note Consideration 2.3(a)(iv)
Option Recitals
Owner 5.22
Pledge Agreement 8.19
Proxy Statement 7.8
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Registration Rights Agreement 8.5
Rent Roll 5.22
Retained Employees 7.5(a)
SEC 6.6
Secured Obligations 8.19
Seller's 401(k) Plan 7.5(c)(i)
Share Consideration 2.3(a)(ii)
Share Ownership Agreement Recitals
Stockholder's Meeting 7.9
Transition Agreement 8.17
Transition Period 10.6
TDMC Recitals
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ARTICLE 2
PURCHASE AND SALE OF FHMS SHARES AND NOTES
------------------------------------------
2.1 Description of FHMS Shares and Notes. The shares of FHMS to be sold
------------------------------------
pursuant hereto (the "FHMS Shares") shall consist of all of the issued and
-----------
outstanding capital stock of FHMS and are described in Schedule 2.1. The
------------
promissory notes and other indebtedness of FHMS to be sold pursuant hereto shall
consist of the line items "Inter-Company Payable," "Notes Payable, FHC" and
"Claims Payable" (the "FHMS Indebtedness") in the amounts shown on FHMS's
-----------------
balance sheet as of the Closing Date. For reference purposes only, the
aggregate amount of such items, when combined with the aggregate amount of the
Holding Company Indebtedness is estimated to be Seventy Nine Million Five
Hundred Thousand Dollars ($79,500,000) as of June 30, 1996.
2.2 Sale of FHMS Shares by Seller. On the basis of the representations
-----------------------------
and warranties of the parties and subject to the terms and conditions
hereinafter set forth, at the Closing, Seller shall sell, assign, transfer and
deliver the FHMS Shares to Purchasing Subsidiary and Purchasing Subsidiary shall
purchase, make payment for and accept the FHMS Shares from Seller at the price
and in the manner set forth in this Article 2.
2.3 FHMS Share Purchase Price.
-------------------------
(a) Components of FHMS Share Purchase Price. Upon the terms and
---------------------------------------
subject to the conditions set forth herein, FPA shall deliver to Seller at
the Closing in exchange for the sale, transfer, assignment, conveyance and
delivery of the FHMS Shares to Purchasing Subsidiary, the following
(collectively, the "FHMS Share Purchase Price"):
-------------------------
(i) by wire transfer of immediately available funds to an account
designated by Seller, cash in the amount of Two Million U.S. Dollars
($2,000,000) (the "Cash Payment");
------------
-7-
<PAGE>
(ii) a number of shares (the "Share Consideration") of FPA's
-------------------
Common Stock ("FPA Common") equal to (A) (x) Seventy Five Million U.S.
----------
Dollars ($75,000,000) minus (y) the amount of any cash paid in lieu of
FPA Common by FPA to Seller and in the same manner as the Cash Payment
divided by (B) the Closing Price. The Closing Price shall be the
average of the per share closing prices of FPA Common during the ten
(10) trading days ending on the second trading day prior to Closing as
reported on the National Market System on Nasdaq (the "Nasdaq NMS").
----------
In the event that the Closing Price is less than $13.60 (the "Walk-Away
Price"), then FPA may in its sole discretion terminate this Agreement
by giving notice of termination to Seller no later than one day prior
to Closing, provided, however, that notwithstanding any such notice,
-------- -------
Seller may cause the Closing to occur if it gives notice to FPA no
later than the day prior to Closing that it will accept a number of
shares of FPA Common equal to (A) $75,000,000 divided by (B) the Walk-
Away Price, as the Share Consideration.
(iii) a Promissory Note (the "Bridge Note"), issued by FPA, in the
-----------
principal amount of Twenty Two Million Dollars, ($22,000,000)
containing the terms set forth in Exhibit D hereto and otherwise in
form and substance reasonably satisfactory to the parties hereto;
(iv) a Promissory Note (the "Note Consideration"), issued by
------------------
Purchasing Subsidiary, in the principal amount of Twelve Million U.S.
Dollars ($12,000,000) , which note will be consolidated, at the
Closing, into the Consolidated Note.
(b) No fractional shares of FPA Common shall be issued, but in lieu
thereof Seller shall receive from Purchasing Subsidiary an amount of cash
(rounded up to the nearest whole cent) equal to the product of (i) the
fraction of a share of FPA Common to which Seller would otherwise have been
entitled times (ii) Closing Price.
2.4 Sale of FHMS Indebtedness by Seller. On the basis of the
-----------------------------------
representations and warranties of the parties and subject to the terms and
conditions hereinafter set forth, at the Closing, Seller shall sell, assign,
transfer and deliver the FHMS Indebtedness to Purchasing Subsidiary, without
recourse, and Purchasing Subsidiary shall purchase, make payment for and accept
the FHMS Indebtedness from Seller at the price and in the manner set forth in
this Article 2. Neither FPA nor Purchasing Subsidiary shall have any recourse
against Seller as a result of any default by FHMS under the FHMS Indebtedness,
including any default resulting from FHMS's failure to make any payment of
-8-
<PAGE>
principal or interest or any other payment under the FHMS Indebtedness when due.
2.5 FHMS Indebtedness Purchase Price. Upon the terms and subject to the
--------------------------------
conditions set forth herein, Purchasing Subsidiary shall deliver to Seller at
the Closing in exchange for the sale, transfer, assignment, conveyance and
delivery of the FHMS Indebtedness, without recourse, a promissory note (the
"FHMS Indebtedness Purchase Price") in a principal amount equal to the amount
- ----------------------------------
of FHMS Indebtedness shown on FHMS's pro forma balance sheet as of the Closing
Date (subject to adjustment following the Closing Audit), which promissory note
will be consolidated, at the Closing, into the Consolidated Note.
2.6 Transfer Taxes and Fees. Seller shall be responsible for any
-----------------------
applicable documentary, use, filing, sales, transfer and other taxes or fees due
or payable as a result of the conveyance, assignment, transfer or delivery of
the FHMS Shares by Seller.
ARTICLE 3
APPOINTMENT OF DESIGNEE - SALE AND PURCHASE OF HOLDING COMPANY
--------------------------------------------------------------
SHARES AND NOTES
----------------
3.1 Appointment of Purchasing Shareholder as Designee. On the basis of the
-------------------------------------------------
representations and warranties of the parties and subject to the terms and
conditions hereinafter set forth and in consideration for the sum of $15,000
(the "Designee Consideration") payable to Seller by or on behalf of Purchasing
----------------------
Shareholder by wire transfer at the Closing, at the Closing, Seller shall
appoint Purchasing Shareholder Designee under the Share Ownership Agreement and
shall so notify Selling Shareholder and the agent (the "Agent") under the Share
-----
Ownership Agreement.
3.2 Description of Shares and Notes. The shares of Holding Company to be
-------------------------------
sold pursuant to the Option (the "Holding Company Shares") shall consist of all
----------------------
of the issued and outstanding capital stock of Holding Company and are
described in Schedule 3.2. The promissory notes and other indebtedness of
------------
Holding Company and its subsidiaries to be sold pursuant hereto shall consist
of the line items "Inter-Company Payable," "Notes Payable, FHC" and "Claims
Payable" (the "Holding Company Indebtedness") in the amounts shown on Holding
----------------------------
Company's consolidated balance sheet as of the Closing Date. For reference
purposes only, the aggregate amount of such items, when combined with the
aggregate amount of the FHMS Indebtedness is estimated to be Seventy Nine
Million Five Hundred Thousand Dollars ($79,500,000) as of June 30, 1996.
3.3 Exercise of Option. On the basis of the representations and warranties
------------------
of the parties and subject to the terms and conditions hereinafter set forth, at
the Closing, Purchasing Shareholder shall exercise the Option and Selling
-9-
<PAGE>
Shareholder shall sell, assign, transfer and deliver the Holding Company Shares
to Purchasing Shareholder and Purchasing Shareholder shall purchase, make
payment for and accept the Holding Company Shares from Selling Shareholder at
the price and in the manner set forth in the Share Ownership Agreement.
3.4 Sale of Holding Company Indebtedness by Seller. On the basis of the
----------------------------------------------
representations and warranties of the parties and subject to the terms and
conditions hereinafter set forth, at the Closing, Seller shall sell, assign,
transfer and deliver the Holding Company Indebtedness to Purchasing Subsidiary,
without recourse, and Purchasing Subsidiary shall purchase, make payment for and
accept the Holding Company Indebtedness from Seller at the price and in the
manner set forth in this Article 3. Neither FPA nor Purchasing Subsidiary shall
have any recourse against Seller as a result of any default by Holding Company
or any of its subsidiaries under the Holding Company Indebtedness, including any
default resulting from a failure to make any payment of principal or interest
under the Holding Company Indebtedness when due.
3.5 Holding Company Indebtedness Purchase Price. Upon the terms and
-------------------------------------------
subject to the conditions set forth herein, Purchasing Subsidiary shall deliver
to Seller at the Closing in exchange for the sale, transfer, assignment,
conveyance and delivery of the Holding Company Indebtedness, without recourse, a
promissory note (the "Holding Company Indebtedness Purchase Price") in a
-------------------------------------------
principal amount equal to the amount of the Holding Company Indebtedness shown
on Holding Company's pro forma consolidated balance sheet as of the Closing Date
(subject to adjustment following the Closing Audit), which promissory note will
be consolidated, at the Closing, into the Consolidated Note.
ARTICLE 4
CLOSING
-------
4.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held at 9:00 a.m. local time at the San Francisco office of
-------
Pillsbury Madison & Sutro on the third business day after the conditions to
closing set forth in Articles 8 and 9 hereof are satisfied or waived (the
"Closing Date"), unless the parties hereto otherwise agree.
------------
4.2 Conveyances at Closing.
----------------------
(a) Cash Payment. At the Closing, FPA shall deliver the Cash Payment to
------------
Seller in accordance with Section 2.3(a)(i).
-----------------
(b) Share Consideration. At the Closing, FPA shall issue to Seller a
-------------------
stock certificate representing the Share Consideration, in accordance with
Section 2.3(a)(ii)
------------------
-10-
<PAGE>
together with any cash payable in lieu of fractional shares pursuant to
Section 2.3(b).
--------------
(c) Bridge Note. At the Closing, FPA shall execute and deliver to
-----------
Seller the Bridge Note.
(d) Consolidated Note. At the Closing, Purchasing Subsidiary shall
-----------------
execute and deliver to Seller a promissory note (the "Consolidated Note") in
aggregate principal amount equal to the sum of the FHMS Indebtedness
Purchase Price, the Holding Company Indebtedness Purchase Price (both of
which amounts are subject to adjustment following the Closing Audit) and the
Note Consideration, containing the terms set forth in the term sheet
attached as Exhibit E hereto and otherwise in form and substance reasonably
satisfactory to the parties hereto.
(e) Option Exercise. At the Closing, Purchasing Shareholder shall
---------------
exercise the Option and deliver or cause to be delivered to the Agent under
the Share Ownership Agreement, the price of such Option as set forth
therein.
(f) Holding Company Share Certificate. At the Closing and upon the
---------------------------------
exercise of the Option, the Agent under the Share Ownership Agreement shall
deliver to Purchasing Shareholder a stock certificate representing the
Holding Company Shares, accompanied by an appropriate stock assignment,
which stock certificate shall be immediately delivered to Seller, together
with an appropriate stock assignment, by Purchasing Shareholder pursuant to
the Pledge Agreement. The Holding Company Shares shall be delivered free
and clear of all Encumbrances, other than (i) Encumbrances created by the
registration requirements of the Securities Act of 1933, as amended and (ii)
Encumbrances contemplated hereby or by the Related Agreements.
(g) FHMS Share Certificate. At the Closing, Seller shall deliver to
----------------------
Purchasing Subsidiary, a stock certificate representing the FHMS Shares,
accompanied by an appropriate stock assignment, which stock certificate
shall be immediately redelivered to Seller, together with an appropriate
stock assignment, by Purchasing Subsidiary pursuant to the Pledge Agreement.
The FHMS Shares shall be delivered free and clear of all Encumbrances, other
than (i) Encumbrances created by the registration requirements of the
Securities Act of 1933, as amended and (ii) Encumbrances contemplated hereby
or by the Related Agreements.
(h) Certificates; Opinions; Closing Conditions. FPA, Purchasing
------------------------------------------
Shareholder, Seller and Selling Shareholder shall deliver the agreements,
certificates, opinions of counsel and other items described in Articles 8
----------
and 9.
-
-11-
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to FPA as follows:
5.1 Organization. FHMS is a corporation and each of Holding Company and
------------
each of its subsidiaries is a professional corporation, duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation and is duly qualified and in good standing as a foreign
corporation in any state other than its state of incorporation where its
business requires that it be so qualified, with all requisite power and
authority to own, lease and operate its respective properties and to carry on
its respective Business as now being conducted.
5.2 Authorization. Each of Seller and Selling Shareholder has full power
-------------
and authority to enter into and perform this Agreement, the Related Agreements
and the other agreements and documents contemplated by this Agreement to which
it is a party and to carry out the transactions contemplated by this Agreement
and such other agreements. Each of this Agreement and the Share Ownership
Agreement has been duly and validly executed and delivered by each of Seller and
Selling Shareholder, and constitutes and upon the execution and delivery by each
of Seller and Selling Shareholder of the Related Agreements to which it is a
party such Related Agreements will constitute, the legally valid and binding
obligation of each of them, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors' rights generally and general principles of equity.
5.3 No Material Adverse Change. Except as listed on Schedule 5.3, since
-------------------------- ------------
the Financial Statement Date, there has not been any Material Adverse Change in
either of the Businesses.
5.4 Leased Real Property. Schedule 5.4 contains a complete and accurate
-------------------- ------------
list of all Leased Real Property. With respect to such Leased Real Property,
each of FHMS, Holding Company and Holding Company's subsidiaries has in all
material respects performed all the respective obligations required to be
performed by it with respect to the Leased Real Property as lessee under the
leases of such property. Notwithstanding the foregoing, this representation
shall not be deemed to be untrue in any material respect as of the Closing Date
solely because any Expiring Contract has expired in accordance with its terms or
has been renegotiated by FHMS, Holding Company or any of Holding Company's
subsidiaries in consultation with FPA or in accordance with Section 9.14 (Pre-
------------ ----
Closing Transactions).
- --------------------
-12-
<PAGE>
5.5 Contracts and Commitments. (a) Schedule 5.5 contains a true and
------------------------- ------------
complete list of each of the following Contracts (the "Material Contracts") to
------------------
which FHMS, Holding Company, or any of Holding Company's subsidiaries is a
party:
(i) all Contracts (excluding Employee Benefit Plans and Contracts
which can be terminated at will without subjecting FHMS, Holding
Company or any of Holding Company's Subsidiaries to cost or penalty)
providing for a commitment for employment or consultation services for
a specified or unspecified term to, or otherwise relating to employment
or the termination of employment of, any Employee;
(ii) all Contracts with any Person containing any provision or
covenant prohibiting or materially limiting the ability of FHMS,
Holding Company or any of Holding Company's subsidiaries to engage in
any business activity or compete with any Person in connection with
their respective Businesses or prohibiting or materially limiting the
ability of any Person to compete with FHMS, Holding Company or any of
Holding Company's subsidiaries in connection with either of the
Businesses;
(iii) all material partnership, joint venture, shareholders' or
other similar Contracts with any Person in connection with either of
the Businesses;
(iv) all Contracts relating to the future disposition or
acquisition of any assets material to either of the Businesses, other
than dispositions or acquisitions in the Ordinary Course of business;
(v) all other Contracts (other than Employee Benefit Plans, the
Real Property Leases and Insurance Policies) with respect to either of
the Businesses that (A) involve the payment or potential payment,
pursuant to the terms of any such Contract, by or to FHMS, Holding
Company or any of Holding Company's subsidiaries of more than $100,000
annually and (B) cannot be terminated within sixty (60) days after
giving notice of termination without resulting in any material cost or
penalty to FHMS, Holding Company or any of Holding Company's
subsidiaries.
(b) There is no default or event that with notice or lapse of time, or
both, would constitute a default by FHMS, Holding Company or any of Holding
Company's subsidiaries under any of the Material Contracts to which it is a
party. To Seller's knowledge, neither FHMS, Holding Company nor any of
Holding Company's subsidiaries has received written notice of a default
under any Material Contract by any other party thereto. Each of the
Material Contracts is
-13-
<PAGE>
enforceable against FHMS, Holding Company or one of Holding Company's
subsidiaries, as the case may be, in accordance with its terms, except as
such enforceability may be limited by general principles of equity or by
bankruptcy, insolvency or other similar laws relating to rights of
creditors. Neither FHMS, Holding Company nor any of Holding Company's
subsidiaries has received notice that any party to any of the Material
Contracts intends to cancel or terminate any of the Material Contracts or to
exercise or not exercise any options under any of the Material Contracts.
Notwithstanding the foregoing, this representation shall not be deemed to be
untrue in any material respect as of the Closing Date solely because any
Expiring Contract has expired in accordance with its terms or has been
renegotiated by FHMS, Holding Company or any of Holding Company's
subsidiaries in consultation with FPA or in accordance with Section 9.14
------------
(Pre-Closing Transactions).
------------------------
5.6 Permits and Governmental Filings.
--------------------------------
(a) Permits. To Seller's knowledge, Schedule 5.6(a) sets forth a
------- ---------------
complete and accurate list of all material Permits which constitute all
material Permits required to conduct the Businesses as now being conducted.
No notice or warning from any authority with respect to the suspension,
revocation, or termination of any material Permit has been received by
Seller, FHMS, Holding Company or Selling Shareholder. Seller has caused
FHMS to deliver or Selling Shareholder has caused Holding Company to deliver
to FPA true, correct and complete copies of all Permits requested by FPA.
(b) Filings. Except as disclosed on Schedule 5.6(b) hereto, no notice
------- ---------------
to, declaration, filing or registration with, or Permit from, any
Governmental Authority is required to be made or obtained by FHMS, Holding
Company or any of Holding Company's subsidiaries in connection with the
execution, delivery or performance of this Agreement and the consummation of
the transactions contemplated by this Agreement and the Related Agreements,
except for any such notices, declarations, filings, registrations or Permits
the failure of which to be obtained would not reasonably be expected to have
a Material Adverse Effect on either of the Businesses.
(c) Certain Approvals. FHCA has been consulted regarding the current
-----------------
medical director of FHMG in accordance with Section 2.1(h) of the
Professional Provider Agreement (the "FHMG Agreement") currently in effect
--------------
between FHCA and FHMG. FHCA acknowledges receipt of copies of the written
agreements pursuant to which Provider Risk Services (as defined in the FHMG
Agreement) are rendered in accordance with Section 2.8 of the FHMG
Agreement.
-14-
<PAGE>
5.7 No Conflict or Violation. None of the execution, delivery and
------------------------
performance of this Agreement, the consummation of the transactions contemplated
hereby, and the compliance by Seller and Selling Shareholder with any of the
provisions hereof, will (i) violate or conflict with any provision of the
Articles or Certificate of Incorporation or Bylaws of FHMS or Holding Company or
any of Holding Company's subsidiaries, (ii) violate, conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Encumbrance upon any material asset of FHMS, Holding Company or any of Holding
Company's subsidiaries under, any of the terms, conditions or provisions of any
Contract to which FHMS, Holding Company or any of Holding Company's subsidiaries
is a party except for violations, conflicts, breaches, defaults, terminations,
accelerations, rights of termination or acceleration, or Encumbrances that would
not reasonably be expected to have a Material Adverse Effect on either of the
Businesses or (iii) to Seller's knowledge, violate any Laws the violation of
which would reasonably be expected to have a Material Adverse Effect on either
of the Businesses.
5.8 Financial Statements. The Financial Statements (i) are in accordance
--------------------
with the books and records of FHMS, Holding Company and Holding Company's
subsidiaries, as appropriate, and (ii) fairly and accurately present the assets
and liabilities of the Businesses indicated therein as of the dates thereof.
5.9 Litigation. Except as disclosed on Schedule 5.9, as of the date hereof
---------- ------------
there are no suits, labor disputes or other litigation or proceedings
("Actions") pending or, to Seller's knowledge, threatened in writing against
-------
FHMS or Holding Company or any of Holding Company's subsidiaries, with respect
to their respective Businesses, other than Actions that would not reasonably be
expected to have a Material Adverse Effect on either of the Businesses.
5.10 Compensation. Schedule 5.10 contains a true and complete list of all
------------ -------------
employees of FHMS, Holding Company or any of Holding Company's subsidiaries
(each, an "Employee") specifying their names, job designations, dates of hire
--------
and rates of compensation.
5.11 Compliance with Laws. FHMS's Business is in compliance with all Laws
--------------------
relating to FHMS's Business, except where the failure to comply would not
reasonably be expected to have a Material Adverse Effect on FHMS's Business and
Holding Company's Business is in compliance with all Laws relating to Holding
Company's Business, except where the failure to comply would not reasonably be
expected to have a Material Adverse Effect on Holding Company's Business.
-15-
<PAGE>
5.12 Employee Benefits Matters.
-------------------------
(a) Except as set forth on Schedule 5.12, neither FHMS, Holding Company
-------------
nor any of Holding Company's subsidiaries is a party to and none
participates in or has any liability or contingent liability with respect
to:
(i) any "employment benefit plan" (as that term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"));
-----
(ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangement for any
employee, director, consultant or agent, whether pursuant to contract,
arrangement, custom, informal understanding or otherwise, which does
not constitute an employee benefit plan; or
(iii) any employment agreement not terminable upon thirty (30)
days' or less written notice without further liability;
provided, however, that nothing in this paragraph (a) shall require that
- -------- -------
Schedule 5.12 include any plans, arrangements or agreements unless either (i)
- -------------
the plan, arrangement or agreement has been extended to persons because they
have performed or will perform services for FHMS, Holding Company or any of
Holding Company's subsidiaries or (ii) FPA may have any liability or contingent
liability with respect to such plan, arrangement or agreement as a result of the
execution of this Agreement or the transactions contemplated by this Agreement.
(b) A true and correct copy of each of the plans, arrangements or
agreements listed on Schedule 5.12 (the "Employee Benefit Plans") and all
------------- ----------------------
contracts relating thereto or the funding thereof, each as in effect on the
date hereof, have been or will be made available to FPA by FHMS or Holding
Company, as appropriate on or before July 15, 1996.
(c) Except as set forth on Schedule 5.12, none of the Employee Benefit
-------------
Plans is a multiemployer plan (as defined in Section 3(37) of ERISA).
(d) Except as set forth on Schedule 5.12, each Employee Benefit Plan
-------------
complies, in form and in operation in all material respects, with all
applicable requirements of any Laws, including, to the extent applicable,
Sections 401(a) and 501(a) of the Code, and, to Seller's knowledge, no event
has occurred which will or could cause
-16-
<PAGE>
any such Employee Benefit Plan to fail to comply in all material respects
with such requirements.
(e) Except as set forth on Schedule 5.12, neither FHMS, Holding Company
-------------
nor any of Holding Company's subsidiaries has any liability or contingent
liability with respect to its respective Business to provide medical,
dental, life, accidental death and dismemberment, or long-term disability
benefits from its general assets (other than to pay insurance premiums) and,
with respect to each Employee Benefit Plan, all required contributions
including premium payments, have been paid.
(f) Except as set forth on Schedule 5.12, neither FHMS, Holding Company
-------------
nor any of Holding Company's subsidiaries has any liability or contingent
liability, under any Employee Benefit Plan or otherwise, for any post-
retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6
of Title 1 of ERISA and Section 4980B of the Code.
(g) Except as set forth on Schedule 5.12, with respect to any Employee
-------------
Benefit Plan with respect to which FPA is assuming liabilities pursuant to
Section 7.5 or from which assets and liabilities will be transferred to an
-----------
employee benefit plan of FPA (or its Affiliates):
(i) in the case of any such Employee Benefit Plan which is an
"employee pension benefit plan" (within the meaning of Section 3(2) of
ERISA), there have been no amendments thereto which are not the subject
of a favorable determination letter issued with respect thereto by the
IRS and no event has occurred which will or could give rise to
disqualification of any such plan under such Sections or to a Tax under
Section 511 of the Code;
(ii) there have been no "prohibited transactions" (as described in
Section 406 of ERISA or Section 4975 of the Code) with respect to any
such Employee Benefit Plan;
(iii) there have been no acts or omissions by FHMS, Holding
Company or their respective Affiliates with respect to such Employee
Benefit Plan which have given rise to or may give rise to fines,
penalties, Taxes or related charges under Section 502 of ERISA or
Chapters 43, 47 or 68 of the Code;
(iv) none of the payments contemplated under such Employee Benefit
Plan would, in the aggregate, constitute excess parachute payments (as
defined in
-17-
<PAGE>
Section 280G of the Code (without regard to subsection (b)(4)
thereof));
(v) there are no Actions (other than routine claims for benefits)
pending or to Seller's knowledge threatened in writing involving any
such Employee Benefit Plan or the assets thereof and no facts exist
which could give rise to any such Actions (other than routine claims
for benefits); and
(vi) with respect to any such Employee Benefit Plan which is
subject to Title IV of ERISA:
i. there has been no reportable event (as described in
Section 4043 of ERISA);
ii. no steps have been taken to terminate any such plan;
iii. there has been no withdrawal (within the meaning of
Section 4063 of ERISA) of a "substantial employer" (as defined
in Section 4001(a)(2) of ERISA);
iv. no event or condition has occurred which might
constitute grounds under Section 4042 of ERISA for the
termination of or the appointment of a trustee to administer any
such plan; and
v. if each such plan were terminated immediately after the
Closing, there would be no unfunded liabilities with respect to
any such plan, its participants or beneficiaries or the Pension
Benefit Guaranty Corporation.
5.13 Insurance. Schedule 5.13 lists all policies of fire, liability, life
--------- -------------
and employee health, environmental, medical malpractice, workers' compensation
and other forms of insurance currently held and maintained by FHMS, Holding
Company, or any of Holding Company's subsidiaries (the "Insurance Policies").
------------------
Seller believes that such Insurance Policies are commercially reasonable in
amount and coverage. All of the Insurance Policies are in full force and
effect, all billed premiums with respect thereto covering all periods up to and
including the Closing Date have been paid or will have been paid on or prior to
the Closing Date and no written notice of cancellation or termination has been
received with respect to any such Policy, except for failures to pay or
cancelations or terminations which would not reasonably be expected to have a
Material Adverse Effect on FHMS's or Holdings Company's Business.
5.14 No Undisclosed Liabilities. Except as disclosed on Schedule 5.14, or
-------------------------- -------------
elsewhere in the Disclosure Schedule, since the Financial Statement Date (i)
FHMS has not incurred any Liability
-18-
<PAGE>
material to FHMS's Business (ii) neither Holding Company nor any subsidiary of
Holding Company has incurred any Liability material to Holding Company's
Business, in each case other than in the Ordinary Course.
5.15 Capital Structure.
-----------------
(a) The issued and outstanding FHMS Shares are held directly by Seller
in the amount set forth on Schedule 2.1 hereto and represent all of the
------------
outstanding capital stock of FHMS. The issued and outstanding Holding
Company Shares are held directly by Selling Shareholder in the amount set
forth on Schedule 3.2 hereto and represent all of the outstanding capital
------------
stock of Holding Company.
(b) All of the outstanding Holding Company Shares and FHMS Shares (i)
were issued in compliance with applicable federal and state securities laws,
(ii) are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the respective issuer of such shares or any
agreement to which Seller, FHMS, Selling Shareholder or Holding Company is
bound and (iii) are not subject to any options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests
in Holding Company or FHMS, respectively, except that all of the Holding
Company Shares are subject to the Option and except as set forth on Schedule
--------
5.15. The Holding Company Shares are wholly owned by Selling Shareholder
----
free and clear of all Encumbrances except for the Option and as set forth on
Schedule 5.15 and the FHMS Shares are wholly owned by Seller free and clear
-------------
of all Encumbrances except as set forth on Schedule 5.15.
-------------
(c) Except as set forth on Schedule 5.15, there are no voting trusts,
-------------
registration rights, proxies, shareholder agreements or other agreements or
understandings with respect to the Holding Company Shares or the FHMS
Shares.
5.16 Real Property. Neither Holding Company nor any of Holding Company's
-------------
subsidiaries owns any real property in fee. As of the Closing Date, FHMS will
not own any real property in fee.
5.17 Taxes. Each of FHMS and Holding Company has duly filed or caused to be
-----
filed with the appropriate Governmental Authority all tax returns and reports
required to be filed (subject to permitted extensions or amendments applicable
to such filings) with respect to their respective Businesses at or prior to the
Closing Date for all periods up to and including the Closing Date and will
timely file subsequent to the Closing Date such tax returns as shall be due
thereafter for periods up to and including the Closing Date and Seller shall be
entitled to all the benefits, including any net operating losses, and be
-19-
<PAGE>
responsible for all the obligations of, such tax returns (which returns are or
will be accurate and complete), and shall have paid all Taxes shown to have
become due pursuant to such tax returns and will continue to pay such Taxes for
periods ending on or before the Closing Date. FPA and Purchasing Shareholder
shall join and cause Holding Company and FHMS to join, Seller and Selling
Shareholder, as the case may be, in filing or amending any such tax returns, if
required, at no out-of-pocket expense to FPA and Purchasing Shareholder.
Neither FHMS, Holding Company nor any of Holding Company's subsidiaries is a
party to any pending action or proceeding, nor, to the knowledge of Seller, is
any such action or proceeding threatened in writing by any Governmental
Authority against FHMS, Holding Company or any of Holding Company's subsidiaries
for the assessment or collection of Taxes. Since the Financial Statement Date,
no liability for Taxes has been incurred by FHMS, Holding Company or any of
Holding Company's subsidiaries other than in the Ordinary Course of business.
There are no liens for Taxes except for liens for property taxes not yet
delinquent.
5.18 Proprietary Rights. Each of Holding Company and Holding Company's
------------------
Subsidiaries owns or licenses all trademarks, trade or fictitious names,
copyrights and proprietary know-how necessary or material to their respective
Businesses as currently conducted.
5.19 Subsidiaries. Neither of FHMS nor Holding Company owns, directly or
------------
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust, or other entity except as set forth
on Schedule 5.19 hereto.
-------------
5.20 Accounts Receivable. All accounts receivable of FHMS, FHMG and TDMC
-------------------
shown on the Financial Statements and all accounts receivable arising after the
Financial Statement Date, arose from transactions in the Ordinary Course and
have been collected or to Seller's knowledge, are collectible in at least their
aggregate recorded amounts, net of any applicable reserve.
5.21 Brokers. Other than Bear, Stearns & Co., Inc. which has acted on
-------
behalf of Seller and its Affiliates in connection with the transactions
contemplated hereby, and whose commissions, fees and expenses are the sole
responsibility of Seller, no Person has acted on behalf of Seller in connection
with the transactions contemplated hereby in such a way as to give rise to a
valid claim against FPA or its Affiliates for brokerage commissions, or
finders' or similar fees.
5.22 Certain Real Estate and Legal Matters. All references to the "Care
-------------------------------------
Centers" in this Section 5.22 shall mean the real estate constituting the Care
------------
Centers only and shall not refer to any business operations or services
conducted on or from the Care Centers. Schedule 1.1(a) attached hereto contains
---------------
a complete list of all Care Centers and indicates which Care Centers are owned,
are leased from a third party or are leased under the May
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<PAGE>
25, 1995 Tax Retention Operating Lease (the "TROL") between FHMS and First
Security Bank of Utah, N.A., as trustee under the FH Trust 1995-1 (the "TROL
Lessor").
(a) Seller has no knowledge, and Seller has received no notice to the
contrary, of any plan, study or effort of governmental authorities which
could reasonably and materially and adversely affect the use of any of the
Care Centers or could reasonably result in any charge being levied against,
or any lien assessed upon, any of the Care Centers (other than usual and
customary real property taxes and assessments for amounts not yet
delinquent). Seller has no knowledge of any existing, proposed or
contemplated plan to widen, modify or realign any street or highway
contiguous to any of the Care Centers.
(b) No notices of violation of laws or governmental regulations
relating to any of the Care Centers have been received by Seller. To the
best of Seller's knowledge, the improvements to the Care Centers were
constructed in all material respects in accordance with all plans,
specifications, drawings and permits applicable thereto and are permitted,
conforming structures under applicable laws and ordinances in effect at the
time of construction.
(c) There is no pending proceeding in eminent domain or any action to
quiet title, which reasonably could materially and adversely affect any of
the Care Centers, nor does Seller know of the existence of any threatened
proceedings or of the existence of any facts which might give rise to such
action or proceeding.
(d) Seller has received all occupancy permits or similar permits
necessary to occupy the Care Centers as they are currently being used and
operated by Seller.
(e) Except for those pending sales and assignments of Care Centers and
interests therein as set forth on attached Schedule 5.22(e) (collectively,
----------------
the "Pending Transfers"), Seller has not entered into any other contracts
for the sale of the Care Centers nor do there exist any rights of first
offer or first refusal or options to purchase any of the Care Centers. The
execution of final documentation and/or closing of any or all of the Pending
Transfers shall not affect the terms or conditions of this Agreement).
(f) Seller has no knowledge, and Seller has received no written notice
to the contrary, of any special assessments which will result from work,
activities or improvements done to the Care Centers by Seller or by any
tenants or other parties, except as disclosed in title documents delivered
by Seller to Purchasing Subsidiary or otherwise examined by or available to
Purchasing Subsidiary.
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<PAGE>
(g) As of the above date, to the best of Seller's knowledge, the Care
Centers are not in violation of any federal, state or local law, ordinance
or regulation promulgated thereunder relating to industrial hygiene or to
the environmental conditions on, under or about the Care Centers including,
but not limited to, all improvements, facilities, structures and equipment
thereon, and the soil and groundwater thereunder. During the time in which
Seller's Affiliates owned the Care Centers (each, an "Owner"), neither the
-----
Owner nor, to the best of Seller's knowledge, any third party has used,
released, generated, manufactured, or produced on, under or about the Care
Centers, or transported to or from the Care Centers, any flammable
explosives, radioactive materials, hazardous wastes or substances,
polychlorinated biphenyls or similar materials that are dangerous to the
public health (collectively, "Hazardous Materials") in violation of
statutes, ordinances or regulations that govern the use and/or disposal of
Hazardous Materials (collectively, "Environmental Laws").
(h) Each of the Care Centers is connected to and served by water,
sewage disposal, drainage, telephone, gas, electricity and other utility
equipment facilities and services required by law, or, to the best of
Seller's knowledge, are reasonably adequate for the present use and
operation of the Care Centers and which are installed and connected pursuant
to valid permits required at the time of construction of the Care Center or
installation of the utility.
(i) To the best of Seller's knowledge, there are no physical or
mechanical defects or deficiencies in the condition of the Care Centers that
would result in the revocation of any required building or occupancy permit.
(j) The Owners have not received any notices from any insurance company
of any defects or inadequacies in the Care Centers.
(k) To the best of Seller's knowledge, there are no storage or other
tanks or containers, or wells or other improvements below the surface of the
Care Centers in violation of any Environmental Laws or in violation of
statutes, ordinances and/or regulation governing the installation, use,
sealing or removal of such storage tanks. The Owners did not install any
underground storage tanks under any of the Care Centers.
(l) Except for the leases and subleases of the Care Centers currently
in effect and disclosed or made available for inspection by Seller (the
"Leases"), there are no oral or written leases, subleases, occupancies, or
tenancies in effect pertaining to the Care Centers.
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<PAGE>
(m) Copies of the Leases, title documents, environmental reports and
similar real estate related documents which have been given to Purchasing
Subsidiary by Seller are true and correct copies thereof in all material
respects.
(n) The Owners have received no written notice from any of the tenants
of any of the Care Centers informing the Owners of any material defects in
the structure or mechanical systems of any of the Care Centers that would
adversely affect use and occupancy of the Care Centers.
(o) With respect of each of the Leases, except as may be otherwise set
forth in the Leases, in the rent roll for the respective Care Centers
provided by Seller to Purchasing Subsidiary, in documentation or information
provided to or available to Purchasing Subsidiary during the normal course
of Purchasing Subsidiary's due diligence, the following information is true
and correct: (a) each of the Leases is in full force and effect according
to the terms set forth therein and has not been further modified, amended,
extended or assigned by Seller, in writing or otherwise; (b) all obligations
of each Owner, as landlord under the Leases, which have accrued prior to
Closing will be performed in all material respects and, to Seller's best
knowledge, no tenant has asserted or has any defense to, or any offsets,
abatements, concessions, claims against, any rent payable by it after the
date hereof, or any calculation of rent, or the performance of any other
obligations under such tenant's respective Lease; (c) to the best of
Seller's knowledge, no tenant is in default under or in arrears in the
payment of any sum payable or in the performance of any obligation required
of it under its Lease, including but not limited to all rent, taxes,
assessments, repairs and maintenance charges, insurance premiums, utilities
or other charges or expenses, and, to the best of Seller's knowledge, no
tenant has prepaid any rent or other charges; (d) to Seller's best
knowledge, no tenant is unable to perform any or all of its obligations
under its Lease, whether for financial or legal reasons or otherwise; (e) to
Seller's best knowledge, no guarantor or any assignor under any of the
Leases has been released or discharged from any obligation under or in
connection with any of the Leases; (f) Seller has not applied any security
deposit from a tenant to rent or any other obligation due from any tenant
without Purchasing Subsidiary's prior written consent; (g) all work required
to be done by any Owner, as landlord under each such Lease, has been or by
the Closing will be done or furnished unless otherwise agreed by the parties
and no tenant is entitled to any additional work during the term of its
Lease; (h) neither the Leases nor the rents nor any other amounts payable
thereunder have been assigned, pledged or encumbered by Seller, except in
connection with existing indebtedness disclosed by Seller to Purchasing
Subsidiary; and (i)
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Seller has not received from any tenant written notice of any presently
pending dispute regarding the calculation of payment of rent, the terms of
any Lease or any alleged default by Seller, as lessor, under such Lease, or
of any bankruptcy, receivership, custodianship, reorganization, insolvency,
assignment for benefit of creditors or other proceeding of a similar nature
respecting any tenant, any Lease or the Care Centers.
(p) Seller is not now nor at Closing will be a "foreign person" as
defined in Internal Revenue Code section 1445.
(q) To the best of Seller's knowledge, the Leases, environmental
reports, title documents, rent rolls and other documents delivered by Seller
to Purchasing Subsidiary or otherwise made available to Purchasing
Subsidiary by Seller do not contain any false information that could, if
relied upon, materially affect Purchasing Subsidiary's decision to purchase
the Care Centers.
(r) Except for the Pending Transfers and as otherwise disclosed to
Purchasing Subsidiary, neither the respective Owner's interest in the
Leases, nor any of the rentals due or to become due under the Leases, has
been or will be assigned prior to the Closing.
(s) No leasing or brokerage fees or commissions of any nature
whatsoever is now due or shall become due or owing by any Owner to any third
party after the Closing under the existing provisions of any of the Leases.
(t) Subject to the Pending Transfers and clause (u), below, Seller
agrees to cause the Owners to continue to cause the Care Centers to be
managed and maintained, reasonable wear and tear excepted, in the ordinary
and usual course of business prior to the Closing; provided, however, Seller
and the Owners shall not, without the prior written consent of Purchasing
Subsidiary, convey any interest in the Care Centers or subject the Care
Centers to any additional liens, encumbrances, covenants, conditions,
easements, or rights of way adversely affecting the Care Centers or enter
into any contracts, other than contracts terminable upon no less than thirty
days prior notice.
(u) The Owners will not hereafter modify, cancel, extend or otherwise
change any of the terms, covenants, or conditions of the Leases, enter into,
renew or extend any Leases (other than (i) documentation regarding any of
the Pending Transfers, and (ii) Leases or cancellation or modifications of
Leases with any Affiliates of Seller or with any Affiliates of or providers
to the Owners, which may be modified, amended or canceled in the sole and
absolute discretion of the respective Owners at any time before the
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<PAGE>
Closing) without the prior written consent of Purchasing Subsidiary, which
shall not be unreasonably withheld. If Purchasing Subsidiary does not
disapprove any written request of Seller under this subparagraph within ten
(10) days of such request, Purchasing Subsidiary shall be deemed to have
approved such request.
(v) To the extent insured as to the date of this Agreement, the
respective Owners shall, at their sole cost and expense, will keep in full
force all existing insurance policies affecting the Care Centers or any
portion thereof through the Closing.
Purchasing Subsidiary acknowledges that the assignment or subletting, as
applicable of the Leases (collectively, the "Assignments") may require the
written consent of the landlords or sublandlords (collectively, the
"Landlords"). Seller shall solicit the Landlords' consent to the Assignments as
soon as possible after the Closing. Notwithstanding the foregoing, Purchasing
Subsidiary acknowledges that the Closing may occur notwithstanding the inability
or failure to obtain the required consent of each of the Landlords, and
Purchasing Subsidiary shall (i) waive any claims, actions, demands, causes of
action, liabilities, judgments, costs and expenses (collectively, "Claims")
Purchasing Subsidiary may incur as a result of the inability to obtain consent
to the Assignments, and (ii) indemnify, defend and hold Seller harmless from and
against any and all Claims that Purchasing Subsidiary may incur as a result of
proceeding with the Assignments without the consent of each of the Landlords.
Seller shall have no liability for any breach of any of the foregoing
representations or warranties if Purchasing Subsidiary or Purchasing
Subsidiary's agents, attorneys, or other representatives was either aware or
through the exercise of reasonable diligence would have been aware of the facts
to the contrary.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF FPA AND PURCHASING SUBSIDIARY
---------------------------------------------------------------
Each of FPA and Purchasing Subsidiary hereby jointly and severally
represents and warrants to Seller and Selling Shareholder as follows:
6.1 Organization of FPA and Purchasing Subsidiary. Each of FPA and
---------------------------------------------
Purchasing Subsidiary is a corporation and Purchasing Shareholder is a
professional corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is duly qualified and in
good standing as a foreign corporation in any state other than its state of
incorporation where its business requires that it be so
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<PAGE>
qualified, with all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is qualified
to do business as a foreign corporation in the States of California and Arizona.
6.2 Authorization. Each of FPA, Purchasing Subsidiary and Purchasing
-------------
Shareholder has full power, authority and capacity to enter into and perform
this Agreement, the Related Agreements and the other agreements and documents
contemplated by this Agreement to which it is a party and to carry out the
transactions contemplated by this Agreement and such other agreements. This
Agreement has been duly and validly executed and delivered by each of FPA,
Purchasing Subsidiary and Purchasing Shareholder and constitutes and upon the
execution and delivery by each of FPA, Purchasing Subsidiary and Purchasing
Shareholder of the Related Agreements to which it is a party such Related
Agreements will constitute, the legally valid and binding obligation of each of
them, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws and equitable principles relating to or limiting creditors' rights
generally and general principles of equity.
6.3 No Conflict or Violation. None of the execution, delivery and
------------------------
performance of this Agreement, the consummation of the transactions contemplated
hereby, and the compliance by FPA, Purchasing Subsidiary and Purchasing
Shareholder with any of the provisions hereof, will (i) violate or conflict with
any provision of the respective Certificates of Incorporation or Bylaws of FPA
or Purchasing Subsidiary, (ii) except as set forth on Schedule 6.3, violate,
------------
conflict with, or result in a breach of any provision of, or constitute a
default (or any event which, with notice or lapse of time or both, would
constitute a default) under, or result in a right of termination or acceleration
under, any of the terms, conditions or provisions of any contract, indebtedness,
note, bond, indenture, security or pledge agreement, commitment, license, lease,
franchise, permit, agreement, or other instrument or obligation to which FPA,
Purchasing Subsidiary or Purchasing Shareholder is a party except for
violations, conflicts, breaches, defaults, terminations, accelerations, rights
of termination or acceleration, or Encumbrances that would not reasonably be
expected to have a Material Adverse Effect on FPA or Purchasing Subsidiary or
(iii) to FPA's knowledge violate any Laws the violation of which could
reasonably be expected to have a Material Adverse Effect on FPA or Purchasing
Subsidiary.
6.4 Permits and Governmental Filings.
--------------------------------
(a) Permits. To FPA's knowledge, Schedule 6.4(a) sets forth a complete
------- ---------------
and accurate list of all material Permits which constitute all material
Permits required to conduct the respective businesses of FPA and Purchasing
Subsidiary as now being conducted. No notice or warning from any
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<PAGE>
authority with respect to the suspension, revocation, or termination of any
material Permit has been received by FPA. FPA has delivered to Seller true,
correct and complete copies of all Permits requested by Seller.
(b) Filings. Except as disclosed on Schedule 6.4(b) hereto, no notice
------- ---------------
to, declaration, filing or registration with, or Permit from, any
governmental or regulatory body or authority is required to be made or
obtained by FPA, Purchasing Subsidiary or Purchasing Shareholder in
connection with the execution, delivery or performance of this Agreement and
the consummation of the transactions contemplated by this Agreement and the
Related Agreements, except for any such notices, declarations, filings,
registrations or Permits, the failure of which to be obtained would not
reasonably be expected to have a Material Adverse Effect on FPA or
Purchasing Subsidiary.
6.5 Financial Statements. The FPA Financial Statements, together with the
--------------------
notes thereto (i) are in accordance with the books and records of FPA, (ii)
fairly and accurately present the assets, liabilities and financial position of
FPA as of the dates thereof and the results of operations for the periods then
ended and (iii) have been prepared in accordance with GAAP consistently applied
throughout the periods presented.
6.6 SEC Documents. FPA (i) has provided to Seller and Selling Shareholder,
-------------
a true and complete copy of FPA's Annual Report on Form 10-K (without exhibits)
for the years ended December 31, 1994 and December 31, 1995, and Quarterly
Report on Form 10-Q for the three (3) months ended March 31, 1996, and its
definitive 1996 proxy statement filed by FPA with the SEC and (ii) will provide
to Seller and Selling Shareholder all documents filed by FPA with the SEC at or
prior to the Closing Date (collectively, with the documents listed in clause
(i), the "FPA SEC Documents"). As of their respective filing dates, FPA has
-----------------
made all necessary filings with the Securities and Exchange Commission ("SEC")
---
required to be filed by it since October 20, 1994, the FPA SEC Documents comply
or will comply in all material respects with the requirements of the Exchange
Act or the Securities Act, and none of the FPA SEC Documents contains or will
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, except to the extent material statements in any of the foregoing are
modified or superseded in accordance with applicable rules and regulations of
the SEC by a subsequently filed FPA SEC Document delivered to the Shareholders
prior to the date of this Agreement.
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<PAGE>
6.7 No Material Adverse Change. Except as listed on Schedule 6.7, or in a
-------------------------- ------------
FPA SEC Document since March 31, 1996, there has not been any Material Adverse
Change in FPA.
6.8 Compliance with Laws. To FPA's knowledge, each of FPA, Purchasing
--------------------
Subsidiary and Purchasing Shareholder is in compliance with all Laws, except
where the failure to comply would not reasonably be expected to have a Material
Adverse Effect on FPA or Purchasing Subsidiary.
6.9 Litigation. Except as disclosed on Schedule 6.9, as of the date hereof
---------- ------------
there are no Actions pending or threatened in writing against FPA, Purchasing
Subsidiary or Purchasing Shareholder other than Actions that would not
reasonably be expected to have a Material Adverse Effect on FPA or Purchasing
Subsidiary.
6.10 No Undisclosed Liabilities. Except as disclosed on Schedule 6.10,
-------------------------- -------------
since March 31, 1996, FPA has not incurred any liability material to FPA other
than in the Ordinary Course. Purchasing Subsidiary has no Liabilities other
than pursuant to this Agreement and the Related Agreements and is not a party to
any Contract other than this Agreement and the Related Agreements to which it is
a party.
6.11 Capital Structure.
-----------------
(a) The authorized capital stock of FPA consists of 98,000,000 shares
of Common Stock $.001 par value, 2,000,000 shares of Preferred Stock $.002
par value, the number and classes of outstanding equity securities of FPA
(including securities convertible or exercisable into or exchangeable for
equity securities of FPA) are as listed on Schedule 6.11. The authorized
-------------
capital stock of Purchasing Subsidiary consists of 100 shares of common
stock, $.01 par value.
(b) All of the outstanding shares of capital stock of FPA and
Purchasing Subsidiary (i) were issued in compliance with applicable federal
and state securities laws and (ii) are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the respective issuer
of such shares or any agreement to which FPA or Purchasing Subsidiary is a
party or by which it is bound.
(c) The shares of FPA Common will, when issued and delivered to the
Seller in accordance with this Agreement, be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, FPA's Certificate of Incorporation, Bylaws or any
agreement to which FPA is a party or by which it is bound.
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ARTICLE 7
COVENANTS OF PARTIES HERETO
---------------------------
Seller, Selling Shareholder, FPA, Purchasing Subsidiary and Purchasing
Shareholder each covenant with the other as follows:
7.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, each of Seller, Selling Shareholder, FPA, Purchasing
Subsidiary and Purchasing Shareholder agrees, both before and after the Closing,
(i) to use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement
and the Related Agreements, (ii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder or thereunder, and (iii) to
cooperate with each other in connection with the foregoing, including using all
reasonable efforts (A) to obtain all permits or licenses required to be obtained
under any applicable Laws, (B) to effect all necessary registrations and
filings, including submissions of information requested by governmental
authorities, (C) to fulfill all conditions to this Agreement and (D) to consult
with each other regarding renegotiation of any Expiring Contract. Seller,
Selling Shareholder, FPA, Purchasing Subsidiary and Purchasing Shareholder will
commence all action required under clause (A) above (including making all
filings required under the HSR Act) as soon as reasonably practicable.
7.2 No Solicitation. From the date of this Agreement to the Closing Date
---------------
or earlier termination of this Agreement (the "Exclusivity Period"), neither
------------------
Seller nor Selling Shareholder will directly or indirectly make, entertain,
solicit or encourage inquiries or proposals, enter into or conduct discussions,
or negotiate or enter into an agreement with any party other than FPA,
Purchasing Subsidiary and Purchasing Shareholder for the divestiture of FHMS or
Holding Company, respectively, whether by way of an asset or stock sale,
partnership, joint venture, merger, consolidation or other transaction (provided
that the foregoing shall not limit or restrict restructuring or other changes by
FHMS or Holding Company or any of Holding Company's subsidiaries).
7.3 Inspections. FPA, on the one hand, and Seller and Selling Shareholder,
-----------
on the other, agree that, prior to the Closing, (i) FPA and its Representatives
will have full access to such business, books, records, management and
operations of FHMS, Holding Company and Holding Company's subsidiaries as may be
reasonably required by FPA to evaluate the transactions contemplated by this
Agreement and the Related Agreements provided, however, that nothing contained
-------- -------
herein shall give FPA
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or Purchasing Shareholder a right of access to the consolidated tax returns of
Seller; and (ii) Seller and its Representatives will have full access to such
business, books, records, management and operations of FPA and its Affiliates as
may be reasonably required by Seller to evaluate the quality of healthcare
services provided or to be provided by FPA or its affiliated medical groups.
FPA will exercise reasonable efforts to minimize interference with the
Businesses and Seller will exercise reasonable efforts to minimize interference
with FPA's business. Each of FPA and Seller further agrees to provide the other
with reasonable notice before visiting the other's or its Affiliates' facilities
or contacting the other's or its Affiliates' employees, practitioners or allied
health professionals for the purpose of inspecting and conducting the due
diligence contemplated by this Section 7.3.
-----------
7.4 Conduct of Business. Except as set forth in Schedule 7.4 or as
------------------- ------------
specifically contemplated by this Agreement and the Related Agreements or
requested by FPA in writing, from the date hereof until the Closing, Seller will
cause FHMS to and Selling Shareholder will cause Holding Company to operate its
respective Business in the Ordinary Course. In addition, from the date hereof
through the Closing, (i) Seller will not permit FHMS and Selling Shareholder
will not permit Holding Company or any of its Subsidiaries, except in the
Ordinary Course, to sell, transfer or assign or acquire any asset material to
its respective Business (materiality for this purpose being defined as $100,000)
and (ii) Seller will not permit FHMS to and Selling Shareholder will not permit
Holding Company or Holding Company's subsidiaries to, enter into any Contract
other than in the Ordinary Course. In addition, Seller will not permit FHMS to
and Selling Shareholder will not permit Holding Company or any of its
subsidiaries to (i) 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 or (ii)
amend their respective Articles or Certificates of Incorporation or Bylaws,
except as may be necessary or advisable in connection with the transactions
contemplated hereby and by the Related Agreements.
7.5 Employee Matters.
----------------
(a) Employee Benefits Generally. The employees of FHMS, Holding
---------------------------
Company and Holding Company's subsidiaries who are retained by FPA or a
subsidiary or Affiliate of FPA (including Purchasing Subsidiary) shall be
referred to herein as the "Retained Employees." FPA shall provide each
Retained Employee (and, to the extent applicable, the Retained Employee's
respective eligible dependents) benefits which are substantially similar to
those provided under the employee benefit plans applicable to similarly
situated employees of FPA or its Affiliates. Without limiting the
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foregoing, FPA shall provide health coverage to each Retained Employee (and
dependents) under a group health plan of FPA, shall waive any pre-existing
condition exclusion that otherwise would apply, shall provide each Retained
Employee (and dependent) with credit under the group health plan for any
deductibles and co-payments paid during the coverage year with respect to
the Retained Employee's (and dependent's) coverage prior to the Closing Date
and shall provide such group health plan coverage as of the Closing Date.
For purposes of determining eligibility to participate, vesting and benefit
eligibility in any employee benefit plan of FPA, its subsidiaries or
Affiliates, FPA shall give each Retained Employee full credit for the
service credited to the Retained Employees under the Employee Benefit Plans.
The preceding sentence does not require FPA to give any Retained Employee
credit under its employee pension benefit plans for prior pension benefit
accrual service under any Employee Benefit Plan.
(b) Assumption of Liabilities. Except as specifically provided in this
-------------------------
Section 7.5 or in Section 10.5(a), effective as of the Closing Date, FPA
----------- ---------------
agrees that FHMS shall have all liability and responsibility of Seller with
respect to employees or former employees of FHMS or with respect to
employees or former employees of the Holding Company or the Holding
Company's subsidiaries, provided, that such liabilities are shown in the pro
forma consolidated balance sheet attached hereto as Schedule 1.1(b) (as may
---------------
be further described on Schedule 7.5(b)). Seller and its subsidiaries and
---------------
Affiliates shall not retain any, and shall not be deemed to have retained
any, of such liabilities or responsibilities.
(c) Seller's 401(k) Plan.
--------------------
(i) Effective as of the Closing Date and as soon as practicable
thereafter, FPA shall cause FHMS to make all required contributions to
be made to the Foundation Health Corporation Profit Sharing and 401(k)
Plan (as amended and restated effective January 1, 1994) ("Seller's
--------
401(k) Plan") for each participating FHMS Employee.
-----------
(ii) Each FHMS Employee shall cease to participate in Seller's
401(k) Plan for periods after the Closing Date. As soon as practicable
after the Closing Date, as more fully described below, Seller and FPA
shall arrange for the transfer of Seller's 401(k) Plan accounts (the
"Accounts") of the FHMS Employees who are participants in Seller's
---------
401(k) Plan and who elect to make such transfer during the election
period established by Seller. Such Accounts shall be valued as of the
last business day before the transfer is effected from Seller's 401(k)
Plan and shall be
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transferred to one or more defined contribution plans (within the
meaning of Section 3(34) of ERISA) which is or are maintained by FPA,
its subsidiaries or Affiliates for the benefit of eligible employees
and which is or are qualified under Section 401(a) of the Code
(collectively, "FPA's Savings Plans"). FPA, its subsidiaries and
-------------------
Affiliates agree to cooperate with Seller, its subsidiaries and
Affiliates in directing the trustee of any trust in which the assets of
Seller's 401(k) Plan are invested to transfer to a new trustee or
trustees or other funding agent or agents appointed by FPA or its
Affiliates for FPA's Savings Plan, the amount of assets in the Accounts
of the affected FHMS Employees participating in Seller's 401(k) Plan.
Such transfer of assets of Seller's 401(k) Plan described above shall
be made in cash or marketable securities. Such transfer of assets
shall occur as soon as practicable after the last to occur of the
receipt by Seller of FPA's (its subsidiary's or Affiliate's)
certification that (i) FPA, its subsidiaries or Affiliates has
established FPA's Savings Plans; (ii) FPA, its subsidiaries or
Affiliates has received or requested a favorable determination letter
for FPA's Savings Plans from the Internal Revenue Service, and (iii)
FPA's Savings Plans provide that each participating FHMS Employee
shall, immediately after the date of the transfer of assets in the
Accounts as described above, have an accrued benefit under FPA's
Savings Plans at least equal to the benefit accrued under Seller's
401(k) Plan immediately prior to such date. As of the transfer date,
FPA shall become the plan sponsor with respect to the transferred
Accounts of FHMS Employees and shall assume all obligations and
Liabilities under all applicable Laws with respect to such Accounts.
(d) Frozen 401(k) Plan. Effective as of the Closing Date or as soon as
------------------
practicable thereafter, Seller shall transfer in whole to FPA all of the
assets and liabilities under the Thomas-Davis Medical Centers, P.C. Profit
Sharing and 401(k) Plan and its related trust (the "Frozen 401(k) Plan").
------------------
As of the transfer date, FPA shall become the plan sponsor of the Frozen
401(k) Plan and shall assume all obligations and liability under all
applicable Laws with respect to the Frozen 401(k) Plan.
(e) SMART Choices Plan. Effective as of the Closing Date and for the
------------------
duration of the current coverage period, FPA shall establish a dependent
care reimbursement account and a health care flexible spending account for
FHMS Employees that continues benefits on the same terms as apply to the
FHMS Employees under the Seller-sponsored SMART Choices Plan. In connection
therewith, effective as of the Closing Date or as soon as practicable
thereafter, Seller
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<PAGE>
shall transfer to FPA account balances of FHMS Employees under the dependent
care reimbursement account and the health care reimbursement account
features of the Seller-sponsored SMART Choices Plan. Effective as of the
Closing Date, with respect to such transferred accounts, FPA shall assume
all obligations and Liabilities under all Applicable Laws.
(f) Matching Contributions. Effective as of the Closing Date, FPA
----------------------
shall assume all obligations and Liabilities of Seller with respect to the
October 31, 1994 letter agreement attached hereto as Exhibit A, regarding
the provision of a 401(k) matching contribution of up to six percent (6%) of
their compensation, with respect to certain employees of TDMC.
(g) Cooperation of FPA and Seller. FPA and Seller shall take all
-----------------------------
actions which they deem necessary or desirable to implement the provisions
of this Section 7.5.
-----------
(h) Third Party Beneficiaries. It is understood and agreed between FPA
-------------------------
and Seller that all provisions contained in this Agreement with respect to
employee benefit plans or employee compensation or employment are included
for the sole benefit of the parties hereto and do not and shall not create
any right in any other person, including, but not limited to, any Employee,
any participant in any benefit or compensation plan or any beneficiary
thereof.
(i) Action by FPA's Affiliates. Any action required by FPA pursuant to
--------------------------
this Section 7.5 shall be deemed satisfied to the extent such action is
-----------
taken by an Affiliate of FPA.
7.6 FPA's Covenant Not to Compete.
-----------------------------
(a) FPA's Prohibited Conduct. Each of FPA and Purchasing Subsidiary
------------------------
acknowledges and agrees that pursuant to the transactions contemplated
hereby and due to the ongoing relationship among Seller, FHCA, Family and
Senior Care, Inc., FHMG, TDMC, Purchasing Subsidiary and FPA contemplated
hereby, by the Professional Group Provider Agreements and the other Related
Agreements, FPA and its Affiliates will be receiving confidential and
proprietary information concerning Seller, FHCA and their Affiliates and
that the use of such information by FPA or its subsidiaries or Affiliates
(including Purchasing Subsidiary) could result in serious economic detriment
to Seller, FHCA and/or their Affiliates. Therefore, subject to the
provisions of this Section 7.6, neither FPA nor any of its Affiliates
-----------
(including Purchasing Subsidiary) shall seek to modify its respective Knox-
Keene Act limited license so as to operate as a comprehensive health care
service plan, or hold, acquire, or make any commitment to hold or acquire a
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<PAGE>
controlling interest in, a comprehensive health plan, which offers insured,
self-insured or prepaid health insurance products to individuals, to
CHAMPUS, FEHBP, Medicare, Medicaid or other state or federal healthcare
programs, to commercial groups or other sponsors of health care benefit
plans in the Provider Service Area (as defined in addenda B, C and D to each
Professional Group Provider Agreement) until the earlier of (i) the
expiration of the Professional Group Provider Agreements by their own terms
or (ii) the first anniversary of the date the Professional Group Provider
Agreements terminate as a result of a breach of such agreements by FHCA (the
"Non-Compete Period"). Without limiting the foregoing, the parties hereto
------------------
understand and agree that FPA or an Affiliate of FPA is seeking a restricted
health care service plan license from the California Department of
Corporations in order to continue its operations as in effect on the date
hereof and as of the Closing Date. Upon attainment of such license, FPA
shall only utilize such license for the conduct of its business as currently
conducted and shall not, either directly or indirectly, compete with Seller,
FHCA or any of their respective Affiliates in the Provider Service Area
during the Non-Compete Period by marketing or soliciting potential HMO
enrollees as a direct contractor to employer groups, individuals or
governmental entities. A termination of the Professional Group Provider
Agreements due to a material breach thereof by FPA or an Affiliate of FPA
shall not relieve FPA or its Affiliates from their obligations under this
Section 7.6.
-----------
(b) Seller's Prohibited Conduct. Subject to the provisions of this
---------------------------
Section 7.6, until the earlier of (i) the date which is three (3) years from
-----------
the date hereof or (ii) the termination of a Professional Group Provider
Agreement, Seller shall not (i) purchase any medical group if the FHCA
linked lives to FHMG or TDMC which are provided services by the medical
groups acquired during such period in a given Provider Service Area exceed
five percent (5%) of the number of FHCA linked lives to FHMG or TDMC within
such Provider Service Area or (ii) purchase any independent physicians
association or medical group within a five mile radius of any Care Center
purchased pursuant hereto.
(c) Remedies. The parties hereto acknowledge and agree that the breach
--------
of the provisions of this Section 7.6 by FPA or any of its Affiliates
-----------
(including Purchasing Subsidiary) would cause irreparable harm to Seller and
FHCA and that the party injured by such breach would not have an adequate
remedy at law or in damages. Therefore, FPA consents to the issuance of an
injunction or the other enforcement of equitable remedies against it or its
Affiliates (including Purchasing Subsidiary) at the suit of Seller, without
bond or other security, to compel
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<PAGE>
performance of all the terms of this Section 7.6, and waives the defense of
-----------
the availability of relief in damages.
(d) Severability. To the extent any provision of this Section 7.6
------------ -----------
shall be invalid or unenforceable, it shall be considered deleted herefrom
and the remainder of such provision and of this Section 7.6 shall be
-----------
unaffected and shall continue in full force and effect. In furtherance and
not in limitation of the foregoing, should the duration or geographical
extent of, or business activities covered by any provision of this Section
-------
7.6 be in excess of that which is valid and enforceable under applicable
---
Law, then such provision shall be construed to cover only that duration,
extent or activities which may validly and enforceably be covered. The
parties hereto acknowledge the uncertainty of the Law in this respect and
expressly stipulate that this Section 7.6 shall be given construction that
-----------
renders its provisions valid and enforceable to the maximum extent (not
exceeding its express terms) possible under applicable law.
(e) Termination of Covenant. Notwithstanding anything else contained
-----------------------
herein, if the covenant of Buyer under Section 7.6(a), or the covenant of
--------------
Seller under Section 7.6(b) is found to be unenforceable or if either Buyer
--------------
or Seller or any of their respective Affiliates breach any such covenant and
such breach is not cured within thirty (30) days of receipt of notice
thereof, then the non-breaching party and its Affiliates shall be released
from their obligations under Section 7.6(a) or (b), as the case may be, and
---------------------
such provision shall be deemed terminated and of no further force and
effect.
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<PAGE>
7.7 Purchase of Indebtedness; Post-Closing Adjustment. The parties
-------------------------------------------------
hereto acknowledge and agree that (i) Purchasing Subsidiary shall purchase the
FHMS Indebtedness and the Holding Company Indebtedness as set forth in Articles
--------
2 and 3 and (ii) that the Holding Company Indebtedness Purchase Price, the FHMS
- -------
Indebtedness Purchase Price and the Note Consideration shall be represented by
the Consolidated Note and, together with certain obligations under the
Professional Group Provider Agreements and certain third party indebtedness
shall be guaranteed by FPA in accordance with Section 8.6. The parties hereto
-----------
understand and agree that (i) the Holding Company Indebtedness Purchase Price
and the FHMS Indebtedness Purchase Price will be based, initially, on the amount
of Holding Company Indebtedness and FHMS Indebtedness shown on the Pro Forma
Consolidated Balance Sheet of FHMS, Holding Company and its subsidiaries as of
the Closing Date, (provided, that for the period between June 30, 1996 and
--------
Closing there will be no reduction in the Note for any utilization by the Seller
of tax benefits from FHMS, TDMC and FHMG, it being acknowledged and agreed that
the Tax Sharing Agreements between FHC and each of FHMS, TDMC and FHMG
obligating FHC to compensate each of FHMS, TDMC and FHMG for such utilization
shall be terminated as of July 1, 1996) and that the principal amount of the
Consolidated Note shall reflect such amounts, (ii) Seller shall cause an audit
(the "Closing Audit") of the consolidated balance sheet of FHMS, Holding Company
and its subsidiaries as of the Closing Date to be conducted promptly after the
Closing Date and shall furnish Purchasing Subsidiary with the audited
consolidated balance sheet of FHMS, Holding Company and Holding Company's
subsidiaries within sixty (60) days following the Closing Date and (iii)
following such audit, the principal amount of the Consolidated Note shall be
adjusted such that it equals the actual audited amounts of FHMS Indebtedness and
Holding Company Indebtedness (subject to the proviso in clause (i)) plus the
Note Consideration, adjusted for any difference between (x) the interest paid on
the Consolidated Note between the Closing Date and the date of such adjustment
and (y) that which would have been paid had the Consolidated Note been based on
the audited consolidated balance sheet at the Closing Date. In furtherance of
the foregoing, Purchasing Subsidiary agrees to issue a new Consolidated Note in
the adjusted amount and upon receipt of such new Consolidated Note, Seller
agrees to cancel the existing Consolidated Note.
7.8 Preparation of the Proxy Statement. FPA shall determine whether to
----------------------------------
seek stockholder approval of this Agreement and the Related Agreements and the
transactions contemplated hereby and thereby. If such stockholder approval is
sought, to the extent required by applicable Law, FPA shall promptly prepare and
file with the SEC a Proxy Statement relating to the transactions contemplated
hereby (the "Proxy Statement") and Seller shall promptly furnish all information
---------------
regarding itself, FHMS, Holding Company and Holding Company's subsidiaries as is
reasonably requested by FPA and necessary for the preparation of the Proxy
Statement. FPA shall also take any action (other than
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<PAGE>
qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state and federal
securities laws in connection with the issuance of FPA Common pursuant hereto.
In addition, if FPA is required to prepare a Proxy Statement pursuant hereto,
FPA shall obtain the services of a proxy solicitor reasonably satisfactory to
Seller.
7.9 Stockholders Meeting. If FPA is required to prepare a Proxy Statement
--------------------
pursuant hereto, FPA shall call a meeting of its stockholders (the "Stockholders
------------
Meeting") to be held as promptly as practicable for the purpose of voting upon
- -------
the approval of this Agreement, the Related Agreements and the transactions
contemplated hereby and thereby. FPA's Boards of Directors shall recommend to
its stockholders approval of such matters. If the Board of Directors of FPA is
required by applicable law to review or restate their recommendation, this
Section 7.9 shall not prohibit accurate disclosure that is required in any FPA
- -----------
SEC Document (including the Proxy Statement) or otherwise under applicable law
of the opinion of the Board of Directors of FPA as of the date of such SEC
Document or such other required disclosure as to the transactions contemplated
hereby.
7.10 Agreement to Vote Shares. In consideration for the execution of this
------------------------
Agreement by Seller and Selling Shareholder, each officer of FPA who is a
holder of FPA Common shall, in an agreement reasonably satisfactory to Seller,
agree to vote all shares of FPA Common held by such person entitled to vote at
the FPA Stockholders Meeting (and at any adjournment thereof) in favor of the
transactions contemplated hereby and by the Related Agreements. In addition,
FPA shall use it best efforts to have each non-officer director and beneficial
owner of (5%) or more of the outstanding FPA Common to sign an agreement
agreeing so to do.
7.11 Surgery Center Referrals. Seller and FPA agree to and agree to cause
------------------------
their appropriate Affiliates to use their reasonable best efforts to enter into
an agreement, prior to the Closing Date, providing for referrals from FHMG, TDMC
and Intergroup IPA, P.C. ("IG IPA") to the surgery centers listed in such
agreement such that the referral pattern from FHMG, TDMC and IG IPA to such
surgery centers following the Closing shall be substantially similar to that
prior to the Closing.
7.12 Disease State Management. Seller agrees to cause Integrated Pharmacy
------------------------
Services ("IPS") to and FPA agrees to cause its appropriate Affiliates to use
their reasonable best efforts to enter into an agreement, prior to the Closing
Date, pursuant to which FPA and such Affiliates would promote IPS's Disease
State Management ("DSM") programs to physicians and employees in the care
---
centers of such Affiliates and pursuant to which FPA would and would cause such
Affiliates to, make all FHCA pharmacy claims data available to IPS in a format
such as to allow IPS to fully develop and implement the DSM programs.
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<PAGE>
7.13 Real Estate Matters. As promptly as reasonably possible but in no
-------------------
event later than forty-five (45) days following the date hereof, Seller shall,
at its sole cost and expense, deliver to FPA the following documents and
materials (which shall be delivered as they become available to Seller):
(a) One or more title insurance commitments with respect to the Owned Care
Centers dated no earlier than the date of this Agreement, issued by such title
insurance company as may be reasonably acceptable to FPA and accompanied by
copies of all documents, instruments and other matters referred to therein as
exceptions.
(b) Copies of surveys of the Owned Care Centers prepared by or on behalf of
Seller or its affiliates;
(c) Copies of the most recent real property tax bills with respect to the
Owned Care Centers for the preceding tax year;
(d) Copies of all real property service, maintenance, management, and other
similar real property management contracts with respect to the Owned Care
Centers to which Seller or one of its Affiliates is a party and which is in
Seller's possession or control;
(e) Copies of all certificates of occupancy in Seller's possession or
control for the Owned Care Centers;
(f) Copies of all warranties and guaranties currently in effect and in
Seller's possession or control for the Owned Care Centers or any portion
thereof;
(g) Copies of all soil, seismological, geological, and drainage reports in
Seller's possession or control with respect to the Owned Care Centers;
(h) Copies of any "as built" plans and specifications in Seller's possession
or control for the Owned Care Centers;
(i) Copies of all Leases for the Owned Care Centers, and a current rent roll
showing the names of all tenants under the Leases with respect to the Owned Care
Centers;
(j) Copies of the most recent utility bills and insurance claims in Seller's
possession or control with respect to the Owned Care Centers for the preceding
six (6) month period;
(k) Copies of any environmental audits or studies for the Owned Care Centers
to the extent in Seller's possession or control;
For purposes of this Section 7.13, "Owned Care Centers" shall include those
------------
Care Centers owned by FHMS or any Affiliate of FHMS and those Care Centers
leased by FHMS under the TROL.
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<PAGE>
7.14 Software Licenses. At Closing, FPA agrees to or to cause one of its
-----------------
Affiliates to assume those certain license and maintenance agreements between
Foundation Health, a California Health Plan and the licensors of certain
software which is used in connection with the Businesses, which agreements are
set forth on Schedule 7.14 hereto.
-------------
7.15 Guaranty Payments. In the event Seller advances any funds pursuant to
-----------------
its guaranty of certain bank indebtedness of FPA, then FPA agrees to immediately
pay Seller the amount of any funds so advanced.
ARTICLE 8
CONDITIONS TO SELLER'S AND SELLING SHAREHOLDER'S OBLIGATIONS
------------------------------------------------------------
The respective obligations of Seller and Selling Shareholder to consummate
the transactions provided for by this Agreement and the Related Agreements are
subject, in the discretion of Seller and Selling Shareholder, respectively, to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived on its or his own behalf by Seller or
Selling Shareholder:
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of each of FPA, Purchasing Subsidiary and Purchasing Shareholder
contained in this Agreement shall be true and correct in all material respects
(without duplication of any materiality standard contained therein) at and as of
the date of this Agreement and at and as of the Closing Date, and each of FPA,
Purchasing Subsidiary and Purchasing Shareholder shall have performed in all
material respects all covenants required by this Agreement to be performed by it
prior to the Closing.
8.2 No Proceedings, Litigation or Laws. No Action by any Governmental
----------------------------------
Authority or other Person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement and the Related Agreements or which asserts the right of a
Governmental Authority to approve any aspect of such transactions and which
would reasonably be expected to damage Seller or Selling Shareholder materially
if the transactions contemplated hereunder or thereunder are consummated. There
shall not be any Laws that make the purchase of the Businesses as contemplated
by this Agreement and the Related Agreements illegal or otherwise prohibited.
8.3 Opinion of Counsel. FPA shall have delivered to Seller and Selling
------------------
Shareholder an opinion of Latham & Watkins, special counsel to FPA, Purchasing
Subsidiary and Purchasing Shareholder, dated as of the Closing Date, in form and
substance reasonably satisfactory to Seller and its counsel.
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<PAGE>
8.4 Certificates and Corporate Documents. Each of FPA and Purchasing
------------------------------------
Subsidiary shall have furnished Seller and Selling Shareholder with such
certificates of its officers and others (including Purchasing Shareholder) to
evidence compliance with the conditions set forth in this Article 8 as may be
---------
reasonably requested by Seller and Selling Shareholder. Seller and Selling
Shareholder shall have received from each of FPA and Purchasing Subsidiary,
resolutions adopted by their respective boards of directors and any required
shareholder resolutions, approving this Agreement and the Related Agreements to
which it is a party and the transactions contemplated by this Agreement and such
Related Agreements, certified by FPA's and Purchasing Subsidiary's respective
corporate secretaries.
8.5 Registration Rights Agreement. FPA and Seller shall have entered into
-----------------------------
a Registration Rights Agreement (the "Registration Rights Agreement"),
-----------------------------
containing the terms set forth in the term sheet attached as Exhibit F hereto
and otherwise in form and substance reasonably satisfactory to the parties
hereto.
8.6 Guaranties. FPA shall have (i) executed and delivered to Seller a
----------
Guaranty, containing the terms set forth in the term sheet attached as Exhibit G
hereto and otherwise in form and substance reasonably satisfactory to the
parties hereto, guaranteeing the Consolidated Note and the performance by any
Affiliate of FPA that is a party thereto, of its obligations under the
Professional Group Provider Agreements and (ii) executed and delivered to each
of the third party payees under such indebtedness, a guaranty of the
indebtedness to non-Affiliates shown on the pro forma consolidated balance sheet
of FHMS, Holding Company and Holding Company's subsidiaries attached as Schedule
--------
1.1(b) hereto in the amounts outstanding on the Closing Date.
- ------
8.7 Intentionally Deleted.
---------------------
8.8 Intentionally Deleted.
---------------------
8.9 Master Lease Assignment. FPA, Purchasing Subsidiary and the
-----------------------
designated "Assignors" thereunder shall have entered into a Master Lease
Assignment (the "Master Lease Assignment"), in substantially the form of Exhibit
-----------------------
I hereto.
8.10 Professional Group Provider Agreements. FHCA shall have entered into a
--------------------------------------
Professional Group Provider Agreement with FHMG in substantially the form of
Exhibit B hereto and with TDMC in substantially in the form of Exhibit C hereto.
8.11 Purchase Price. FPA and Purchasing Subsidiary shall have delivered the
--------------
FHMS Share Purchase Price to Seller and Purchasing Subsidiary shall have
delivered the FHMS Indebtedness Purchase Price and the Holding Company
Indebtedness Purchase Price and the Designee Price to Seller.
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<PAGE>
8.12 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired or been terminated.
8.13 Governmental Approvals. Such Governmental Authorities as may be
----------------------
required, shall have received notice of, or applications or other filings with
respect to, the transactions contemplated by this Agreement and the Related
Agreements and, where required, shall have approved same.
8.14 Related Agreements. The various parties named therein shall have
------------------
entered into the agreements set forth on Schedule 8.14 hereto in accordance
-------------
herewith, all of which shall be in full force and effect and none of which shall
have been amended or breached. In addition, each such party other than FPA
shall have delivered to Seller and Selling Shareholder, in the form of a
certificate, the equivalent of the representation made by Seller and FPA with
respect to such Agreements in Section 5.2 (Authorization) and Section 6.2
----------- ------------- -----------
(Authorization), respectively.
- --------------
8.15 Consents. All Permits, waivers and consents required to consummate the
--------
transactions contemplated hereby, including the consents listed on Schedules
---------
5.6(b) and 6.4(b) shall have been obtained.
- -----------------
8.16 No Material Adverse Changes. No violations or alleged violations of
---------------------------
Law by any of FPA or its Affiliates (including Purchasing Subsidiary), including
those arising from patterns or practices engaged in by such Persons, other than
matters which have been previously publicly disclosed, shall have (i) resulted
in any Material Adverse Change since the Financial Statement Date in FPA's or
Purchasing Subsidiary's business or (ii) materially and adversely affected the
ability of FPA, Purchasing Subsidiary or Purchasing Shareholder to consummate
the transactions contemplated hereby and by the Related Agreements.
8.17 Transition Agreement. FPA, Purchasing Subsidiary and Seller shall have
--------------------
entered into a Transition Agreement (the "Transition Agreement"), in form and
--------------------
substance reasonably satisfactory to the parties hereto.
8.18 Releases. Each of Seller, Selling Shareholder, Intergroup of Arizona
--------
and such other Affiliates of Seller as are named therein shall have received a
General Release, containing the terms set forth in the term sheet attached as
Exhibit J hereto and otherwise in form and substance reasonably satisfactory to
the parties hereto, from FHMS, Holding Company and each of Holding Company's
subsidiaries releasing Seller, Selling Shareholder, Intergroup of Arizona and
such other Affiliates of Seller from all claims which FHMS, Holding Company or
any of Holding Company's subsidiaries may have against them arising from events
or occurrences prior to Closing, including any claims which TDMC may have under
the terms of that certain hospital risk sharing arrangement with Intergroup of
Arizona.
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<PAGE>
8.19 Pledge Agreements. (i) Each of FPA, Purchasing Subsidiary, and
-----------------
Purchasing Shareholder shall have executed and delivered to Seller a Pledge
Agreement (a "Pledge Agreement") containing the terms set forth in the term
----------------
sheet attached as Exhibit K hereto and otherwise in form and substance
reasonably satisfactory to the parties hereto, pledging the shares of Purchasing
Subsidiary, FHMS and of Holding Company, respectively, (ii) Holding Company
shall have executed and delivered a Pledge Agreement, pledging the shares of
FHMG and TDMC and (iii) FPA and any Affiliate of FPA possessing such an option
shall have executed a Pledge Agreement, pledging any options it has to purchase
any of the shares pledged pursuant to clauses (i) and (ii) hereof, in each case
to secure Consolidated Note, the Bridge Note and the performance by Buyer and
its Affiliates of their respective obligations under the Professional Group
Provider Agreements (collectively, the "Secured Obligations").
-------------------
8.20 Security Agreement. Each of Purchasing Subsidiary, FHMS, Holding
------------------
Company, FHMG and TDMC shall have executed and delivered to Seller a Security
Agreement, containing the terms set forth in Exhibit L hereto and otherwise in
form and substance reasonably satisfactory to the parties hereto, pledging its
respective assets to secure the Secured Obligations.
8.21 Board Approval. The Board of Directors of Seller shall have approved
--------------
this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby.
8.22 Tax Opinion. Seller shall have received an opinion from Pillsbury
-----------
Madison & Sutro LLP regarding certain tax matters relating to the transactions
contemplated hereby, in form and substance reasonably satisfactory to Seller.
ARTICLE 9
CONDITIONS TO FPA'S OBLIGATIONS
-------------------------------
The respective obligations of FPA, Purchasing Subsidiary and Purchasing
Shareholder to consummate the transactions provided for by this Agreement and
the Related Agreements are subject, in the discretion of FPA, Purchasing
Subsidiary and Purchasing Shareholder, respectively, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived on its own behalf by FPA, Purchasing Subsidiary or Purchasing
Shareholder:
9.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Seller and Selling Shareholder contained in this Agreement shall
be true and correct in all material respects (without duplication of any
materially standard contained therein) at and as of the date of this Agreement
and at and as of the Closing Date, and each of Seller and Selling
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<PAGE>
Shareholder shall have performed in all material respects all covenants required
by this Agreement to be performed by it prior to the Closing.
9.2 No Proceedings, Litigation or Laws. No Action by any Governmental
----------------------------------
Authority or other Person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement and the Related Agreements or which asserts the right of a
Governmental Authority to approve any aspect of such transactions and which
would reasonably be expected to have a Material Adverse Effect on FPA if the
transactions contemplated by this Agreement and the Related Agreements are
consummated. There shall not be any Laws that make the purchase of the
Businesses as contemplated by this Agreement and the Related Agreements illegal
or otherwise prohibited.
9.3 Opinion of Counsel. Seller shall have delivered to FPA an opinion of
------------------
Pillsbury Madison & Sutro LLP, special counsel to Seller, in form and substance
reasonably satisfactory to FPA and its counsel.
9.4 Certificates and Corporate Documents. Seller shall furnish FPA and
------------------------------------
Purchasing Shareholder with such certificates of its officers and others and
Selling Shareholder shall furnish FPA and Purchasing Shareholder with such
certificates, to evidence compliance with the conditions set forth in this
Article 9 as may be reasonably requested by FPA and Purchasing Shareholder. FPA
- ---------
and Purchasing Shareholder shall have received from Seller resolutions adopted
by the board of directors of Seller and any required shareholder resolutions
approving this Agreement, the Related Agreements to which it is a party and the
transactions contemplated by this Agreement and such Related Agreements,
certified by Seller's corporate secretary.
9.5 Other Documents. Seller shall have executed and delivered an
---------------
assignment of the FHMS Shares, the FHMS Indebtedness and the Holding Company
Indebtedness to Purchasing Subsidiary as provided in this Agreement and Selling
Shareholder shall have executed and delivered an assignment of the Holding
Company Shares to Purchasing Shareholder pursuant to the Option as provided in
this Agreement and the Share Ownership Agreement, which documents shall be in a
form reasonably satisfactory to FPA's counsel.
9.6 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired or been terminated.
9.7 Governmental Approvals. Such Governmental Authorities as may be
----------------------
required, shall have received notice of, or applications or other filings with
respect to, the transactions contemplated by this Agreement and the Related
Agreements and, where required, shall have approved same.
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<PAGE>
9.8 Intentionally deleted.
---------------------
9.9 Master Lease Assignment. FPA, Purchasing Subsidiary and the designated
-----------------------
"Assignors" thereunder shall have entered into the Master Lease Assignment.
9.10 Professional Group Provider Agreements. FHCA shall have entered into a
--------------------------------------
Professional Group Provider Agreement with FHMG in substantially the form of
Exhibit B hereto and with TDMC in substantially the form of Exhibit C hereto.
9.11 Related Agreements. The various parties named therein shall have
------------------
entered into the Agreements listed on Schedule 8.14 (Related Agreements), all of
------------- ------------------
which shall be in full force and effect and none of which shall have been
amended or breached. In addition, each such party other than Seller, Selling
Shareholder, FHMS, Holding Company or any of Holding Company's subsidiaries
shall have delivered to FPA, in the form of a certificate, the equivalent of the
representation made by Seller and FPA with respect to the Related Agreements in
Section 5.2 (Authorization) and Section 6.2 (Authorization).
- ----------- ------------- ----------- -------------
9.12 Consents. All Permits, waivers and consents required to consummate the
--------
transactions contemplated hereby, including the consents listed on Schedules
---------
5.6(b) and 6.4(b) shall have been obtained.
- -----------------
9.13 Material Adverse Changes. No violations or alleged violations of Law
------------------------
by FHMS, Holding Company or any of their respective Affiliates, including those
arising from patterns or practices engaged in by such Person, other than matters
which have been previously publicly disclosed, shall have (i) resulted in any
Material Adverse Change since the Financial Statement Date in FHMS's Business or
Holding Company's Business or (ii) materially and adversely affected the ability
of Seller or Selling Shareholder to consummate the transactions contemplated
hereby and by the Related Agreements.
9.14 Pre-Closing Transactions.
------------------------
(a) Transfer of Real Property. Seller shall have caused FHMS to
-------------------------
transfer all real property owned by it in fee (together with all
indebtedness encumbering such real property) to an Affiliate of Seller.
(b) Transfer of CPR Stock. Seller shall have caused the stock of
---------------------
Catalina Professional Recruiters, Inc. to have been transferred from FHMS to
Seller or an Affiliate of Seller.
(c) Transfer of Other Assets and Liabilities. Seller shall have caused
----------------------------------------
those other assets and liabilities which are shown to have been transferred
by FHMS, Holding Company or Holding Company's subsidiaries in the
adjustments
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<PAGE>
resulting in the pro forma consolidated balance sheet attached hereto as
Schedule 1.1(b) to have been transferred by FHMS, Holding Company or one of
---------------
Holding Company's subsidiaries, as the case may be.
9.15 Transition Agreement. FPA and Seller shall have entered into the
--------------------
Transition Agreement.
9.16 Registration Rights Agreement. FPA and Seller shall have entered into
-----------------------------
the Registration Rights Agreement.
9.17 Notice of Designee. Seller shall have notified the Agent and Selling
------------------
Shareholder of Purchasing Shareholder's appointment as Designee in accordance
with the Share Ownership Agreement.
9.18 Board Approval. The Board of Directors of FPA shall have approved this
--------------
Agreement and the Related Agreements and the transactions contemplated hereby
and thereby.
9.19 Stockholder Approval. FPA shall have obtained any approval of its
---------------------
stockholders required by applicable Law to be obtained in connection with the
execution and delivery of this Agreement and the Related Agreements to which FPA
is a party or to consummate the transactions contemplated hereby or thereby.
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<PAGE>
9.20 Voting Agreement. Seller shall have executed and delivered to FPA a
----------------
Voting Agreement, containing the terms set forth in the term sheet attached as
Exhibit M hereto and otherwise in form and substance reasonably satisfactory to
the parties hereto.
9.21 Physicians. The number of physicians employed by Holding Company and
----------
its subsidiaries as of the Closing Date shall not be less than seventy five
percent (75%) of the number of physicians employed by Holding Company and its
subsidiaries as of the date hereof.
9.22 Real Estate Matters. Purchasing Subsidiary shall, in its good faith
-------------------
business judgment, have approved (i) the condition of title to each owned Care
Center, as described in the title commitments and the surveys delivered to or
obtained by Purchasing Subsidiary (provided Purchasing Subsidiary shall not
disapprove any title exception that does not have a material adverse effect on
the use or operation of such Care Center), (ii) environmental audits or studies
of the such Care Centers, (iii) all of the characteristics and aspects of each
Care Centers which may reasonably affect its ownership, operation, use,
development, marketability and/or economic viability, and (iv) the Leases and
service contracts with respect to the Care Centers.
ARTICLE 10
ACTIONS BY SELLER AND FPA AFTER THE CLOSING
-------------------------------------------
10.1 Books and Records. FPA and Purchasing Subsidiary, on the one hand, and
-----------------
Seller, on the other, each agree to cooperate with and make available to the
other, during normal business hours, all books and records of such party,
information and employees (without substantial disruption of employment)
retained and remaining in existence after the Closing which are necessary or
useful in connection with any tax inquiry, audit, investigation or dispute, any
litigation or investigation or any other matter requiring any such books and
records, information or employees for any reasonable business purpose, provided,
--------
however, that nothing contained herein shall give FPA or Purchasing Shareholder
- -------
a right of access to the consolidated tax returns of Seller. The party
requesting any such books and records, information or employees shall bear all
of the out-of-pocket costs and expenses (including attorneys' fees, but
excluding reimbursement for salaries and employee benefits) reasonably incurred
in connection with providing such books and records, information or employees.
Each of FPA, Purchasing Subsidiary and Seller will retain such books and records
in accordance with its corporate records retention policy or as required by law,
whichever requires retention for a longer period. All information received
pursuant to this Section 10.1 shall be subject to the terms of the
------------
Confidentiality Agreement.
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<PAGE>
10.2 Taxes. Seller shall pay, or cause to be paid, when due all Taxes for
-----
which FHMS, Selling Shareholder, Holding Company or any of Holding Company's
subsidiaries is or may be liable or that are or may become payable with respect
to all periods ending on or prior to the Closing. FPA shall pay, or cause to be
paid, when due all Taxes for which FPA, Purchasing Subsidiary, Purchasing
Shareholder, FHMS, Holding Company or any of Holding Company's subsidiaries is
or may be liable or that are or may become payable with respect to all periods
ending subsequent to the Closing.
10.3 338(h)(10) Election. As soon as practicable after the Closing, and in
-------------------
no event later than 30 days after the delivery by Seller of the closing date
balance sheet, Seller, FPA, Purchasing Subsidiary and Purchasing Shareholder
will jointly make an election under Section 338(h)(10) of the Code (and a
comparable election under state law) with respect to the purchase of stock of
Holding Company and FHMS. In connection therewith, Seller, Selling Shareholder,
FPA, Purchasing Subsidiary and Purchasing Shareholder agree to cooperate with
each other and use their reasonable best efforts to effect such 338(h)(10)
election. Without limiting the generality of the foregoing, the parties hereto
agree that (i) Seller, Selling Shareholder, FPA, Purchasing Subsidiary and
Purchasing Shareholder shall prepare and file all documents and materials
necessary or appropriate in connection with making the Section 338(h)(10)
Election, (ii) Seller, FPA and Purchasing Subsidiary shall use their reasonable
best efforts to determine the allocation of the "modified aggregate deemed sale
price" and "adjusted grossed up basis" among the assets of FHMS (in accordance
with the Section 338 Treasury Regulations) and (iii) Seller, FPA and Purchasing
Subsidiary shall use their reasonable best efforts to determine the allocation
of the "modified aggregate deemed sale price" and "adjusted grossed-up basis"
among the assets of Holding Company and its subsidiaries (in accordance with the
Section 338 Treasury Regulations).
10.4 Future Contractual Alliances. Seller and FPA intend to expand their
----------------------------
contractual relationships and agree to negotiate in good faith the terms of a
provider contract for the benefit of Seller and its Affiliates and FPA and FPA's
professional provider groups relating to all service areas of FPA and any Seller
Affiliate engaged in the business of offering a benefit program, which overlap,
as those service areas may change from time to time.
10.5 Certain Obligations Regarding Employees.
---------------------------------------
(a) Retained Obligations. Seller agrees to continue to perform its
--------------------
obligations relating to the grant of options to TDMC and FHMG employees as
set forth on Schedule 10.5, subject in each case to any conditions or terms
-------------
set forth in such arrangements.
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<PAGE>
(b) Employee Information. In order to facilitate the performance of
--------------------
such obligations by Seller, FPA, Purchasing Subsidiary and Purchasing
Shareholder agree to and to cause Holding Company and its subsidiaries to
provide to Seller (i) on a monthly basis, a list of employees of Holding
Company, TDMC or FHMG who have been terminated during the prior month and
the date of termination and (ii) at least ten (10) business days prior to
November 1, 1996 and November 1, 1997, a list of TDMC Practitioners who are
eligible to receive options to purchase the common stock of Seller as set
forth on Schedule 10.5 and such other information as is required to
-------------
effectuate the grant of such options.
(c) Tail Insurance. Seller shall manage all claims alleging medical
--------------
malpractice by any Practitioner that fall within the "tail coverage"
purchased by Holding Company and its subsidiaries immediately prior to
Closing. To facilitate the management of such claims, FPA, Purchasing
Subsidiary and Purchasing Shareholder agree to and agree to cause Holding
Company and its subsidiaries to notify Seller of any potential claims which
may fall within such tail coverage within ten (10) days of the date on which
FPA, Purchasing Subsidiary, Purchasing Shareholder or any of their
Affiliates first becomes aware of the existence of such potential claim. If
notice of a claim or potential claim is not given in accordance with the
preceding sentence, then neither Seller nor any of its Affiliates, including
the Affiliate providing the tail coverage, shall have any liability with
respect to such claim or potential claim, but only if Seller or one of its
Affiliates is actually prejudiced by such failure to give appropriate
notice.
10.6 Foundation Name. Notwithstanding anything else contained in this
---------------
Agreement, it is the express intent of the parties hereto and such parties
hereby agree that neither FPA nor its Affiliates (including Purchasing
Subsidiary) shall gain any right, title or interest in the names "Foundation,"
"Foundation Health," "Foundation Health Medical Group," "Foundation Health
Medical Services," or any similar name or derivation thereof (the "Foundation
----------
Name") pursuant to this Agreement, the Related Agreements and the transactions
- ----
contemplated hereby and thereby, it being expressly understood that Seller and
its Affiliates, as the case may be, shall retain all right, title and interest
in and to the Foundation Name and that each of FHMS, Holding Company and Holding
Company's subsidiaries shall forfeit any interest it might be deemed to have in
the Foundation Name upon the transfer of the FHMS Shares and the Holding Company
Shares, respectively, as contemplated hereby. Notwithstanding the foregoing,
for a period of six (6) months (the "Transition Period") following the date
-----------------
hereof, and for the sole purpose of facilitating the transition of FHMS, Holding
Company and Holding Company's subsidiaries from subsidiaries of Seller and
Selling Shareholder
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<PAGE>
to subsidiaries of Purchasing Subsidiary and Purchasing Shareholder, Seller
grants FPA a non-exclusive, non-transferable license to use the names Foundation
Health Medical Group and Foundation Health Medical Services in California only.
Upon the expiration of the Transition Period, FPA and Purchasing Subsidiary
shall have caused FHMS to and Purchasing Shareholder shall have caused Holding
Company to (i) appropriately dispose of all letterhead, signage and other items
containing or using the Foundation Name and (ii) to have ceased using the
Foundation Name in any manner whatsoever.
10.7 Reimbursement For Certain Tax Matters.
-------------------------------------
(a) Reimbursement. If each of FPA, Purchasing Subsidiary and
-------------
Purchasing Shareholder complies with its obligations under Section 10.3
------------
hereof, but a basis in the assets of Holding Company and its subsidiaries
equal to the "adjusted grossed-up basis" of the assets of such companies as
of the date of Closing, calculated in the manner provided for pursuant to
the Treasury Regulations under Section 338 of the Code, is not obtained
thereby (for reasons other than any action or inaction by FPA or any of its
Affiliates), then Seller shall pay to FPA the amount of the foregone tax
benefit, as defined below, resulting from the failure to obtain such an
adjusted grossed-up basis for those calendar quarters with respect to which
the applicable period of limitations shall not have expired (such expiration
to be measured as of the date it is determined that the "adjusted grossed up
basis" has not been obtained) (the "Tax Indemnity"). For purposes of this
indemnity, the foregone tax benefit for any calendar quarter shall
conclusively be presumed to equal the present value, determined as of the
Closing Date, of the estimated future tax benefit for such calendar quarter
determined by assuming a deduction attributable to depreciation or
amortization for such period in excess of the amount which would otherwise
be available in such period in the amount provided for on Schedule 10.7
-------------
attached hereto, at a discount rate and a combined federal and state income
tax rate such that the present value of the foregone tax benefit from all
deductions set forth on Schedule 10.7 is equal to Thirty Seven Million
-------------
Dollars ($37,000,000) as of the Closing Date. The amount determined
pursuant to the foregoing provisions of this Section 10.7(a) shall be
---------------
increased by the amount of any applicable penalties that result from a
failure to successfully make the 338(h)(10) election that triggers Seller's
indemnification obligation under this Section 10.7(a) and by the amount that
---------------
would have been payable as interest (had such amount constituted a debt
incurred at the date of this Agreement) from the date of this Agreement to
the date payment of such amount is made, for this purpose conclusively
presuming that the applicable interest rate is LIBOR plus 45 basis points
per annum. The indemnity provided for hereunder is the sole and exclusive
remedy of FPA and its Affiliates in the event
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<PAGE>
that a basis in the assets of Holding Company and its subsidiaries equal the
"adjusted grossed-up basis" of the assets of such companies is not obtained.
(b) Pre-Acquisition Losses. In the event, but only in the event, that
----------------------
Seller is or has been obligated to pay the Tax Indemnity, and
notwithstanding anything else contained herein, if, as and when FPA,
Purchasing Subsidiary, FHMS or Holding Company or any of Holding Company's
subsidiaries realizes any tax benefits attributable to pre-acquisition
losses of FHMS, Holding Company or its subsidiaries, FPA will pay to Seller
fifty percent (50%) of the amount of such tax benefit. The amount of FPA's
tax benefit shall equal the difference between the income taxes payable by
FPA (or any Affiliate of FPA) without the utilization of such pre-
acquisition losses, and the amount of such taxes actually paid by FPA (or
any Affiliate of FPA). In the event the use of such pre-acquisition losses
results in a refund of previously paid tax, the amount of the tax benefits
shall include any interest payments made in connection with such refund.
Within 30 days of the filing of FPA's (or its Affiliate's) tax return (or 30
days after receipt of any payment attributable to a claim for refund)
claiming the benefit of any pre-acquisition losses, FPA will cause its
auditors to deliver a certificate to Seller setting forth the calculation of
FPA's (or its Affiliate's) tax benefit, and certifying that such calculation
is correct in all material respects. The cost of such certification shall
be borne by Seller. At Seller's option, any amounts payable from FPA or any
Affiliate of FPA to Seller under this Section may be offset against any
amounts payable from Seller to FPA under this Section.
(c) Contest and Control.
-------------------
(i) FHC and FPA shall promptly (but in any event within 30 days
of receipt of notice) give written notice (the "Notice") to each other
------
of any inquiry, discussions with a tax authority, proposed adjustment,
assertion of a claim, or the commencement of any suit, action or
proceeding against such party (the "Contested Party," and the party
---------------
receiving the Notice, the "Noticed Party") that challenges or questions
-------------
the availability of a Section 338(h)(10) election based upon facts and
circumstances uniquely within the control of the Noticed Party or based
upon actions taken by, or failed to be taken by, the Noticed Party
(each, a "Proposed Adjustment"). The failure of a Contested Party to
-------------------
provide the Noticed Party with Notice within the above time frame shall
relieve the Noticed Party from its obligation to indemnify if such
failure results in the loss or material impairment of the Noticed
Party's rights under this Section 10.7(c).
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(ii) The Contested Party shall give the Noticed Party all
information, including records in its possession and witnesses within
its control, with respect to any Proposed Adjustment, and in each case
the underlying facts relating thereto. In all matters related to the
defense of a Proposed Adjustment, the Contested Party shall act in a
reasonable manner. The Noticed Party and its counsel shall have the
right to participate with the Contested Party and its counsel in (i)
all conferences, meetings or proceedings with any tax authority, the
subject matter of which is or includes any Proposed Adjustment, and
(ii) all appearances before any court or administrative agency, the
subject matter of which includes any Proposed Adjustment. The Noticed
Party shall have the right to monitor and review the Contested Party's
defense of any Proposed Adjustment, including specifically the right to
review and comment on any briefs or other filings made in courts or to
taxing authorities which take substantive positions with respect to
Proposed Adjustments, a reasonable period of time before such filings
are made. The Noticed Party's right to participate referred to herein
shall include, without limitation, the right to participate in the
submission and determination of the contents of documentation,
protests, memoranda of fact and law and briefs, the conduct of oral
arguments or presentations, the selection of witnesses, and the
negotiation of stipulations of fact, all as may be deemed appropriate
by the Noticed Party in its sole discretion but solely with respect to
any Proposed Adjustment. A settlement of a Proposed Adjustment shall
be binding upon the Noticed Party (with the result that the indemnity
obligation under Section 10.7 hereof shall be effective) only if the
Noticed Party consents to such settlement or unreasonably withholds
consent to such settlement.
10.8 Covenant. For a period commencing on the Closing Date and thereafter
--------
for a period of three (3) years, each of Seller and FHCA shall use their best
efforts to encourage commercial members of FHCA and its affiliated health plans
who, as of the Closing Date, have primary care physicians who are employees of
FHMG or TDMC, to continue to select primary care physicians who are employees of
FHMG or TDMC; in the event certain of such commercial members become unassigned
due to the fact that their primary care physician is no longer employed by FHMG
or TDMC and such members do not select another FHCA contracting physician,
Seller and FHCA will assign such non-assigned members to a physician who is
employed by FHMG or TDMC, subject in all cases to adequate availability and
accessibility and other regulatory requirements of the parties.
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10.9 Solicitation of Employees. During the period from the date hereof
-------------------------
until that date which is six (6) months after the Closing Date, neither Seller
or its Affiliates on the one hand, nor FPA or its Affiliates, on the other shall
initiate or maintain contact with any officer, director or employee of the other
regarding the employment of such individual, except for public solicitation of
employment by general advertisement, contacts regarding employment initiated by
the individual involved and contacts with Employees regarding their continued
employment after the Closing.
ARTICLE 11
SURVIVAL AND INDEMNIFICATION
----------------------------
11.1 Survival. Each of the representations, warranties and covenants of
--------
each of FPA, Purchasing Subsidiary and Seller contained in this Agreement shall
be deemed renewed by such party at the Closing as if made at such time and shall
survive the Closing and shall continue in full force and effect for one (1) year
thereafter, other than the representations and warranties of Seller made in
Section 5.17 (Taxes), which shall survive for the applicable statute of
- ------------ -----
limitations. A material misrepresentation or breach of warranty that is either
(A) disclosed in a written notice, delivered by the breaching party to the non-
breaching party after the date of this Agreement and at or prior to the Closing
or (B) otherwise actually known to the non-breaching party prior to the Closing,
allows the non-breaching party to refuse to proceed with the Closing, but does
not give rise to a cause of action for damages or other relief. By nevertheless
proceeding with the Closing, the non-breaching party waives any remedies for any
misrepresentation or breach of warranty of which it was aware prior to the
Closing.
11.2 No Other Representations. Notwithstanding anything to the contrary
------------------------
contained in this Agreement, it is the explicit intent of each party hereto that
Seller is making no representations or warranties whatsoever, express or
implied, except those representations and warranties contained in Article 5 and
---------
neither FPA nor Purchasing Subsidiary is making any representations or
warranties whatsoever, express or implied, except those representations and
warranties contained in Article 6. In particular, but without limiting the
---------
foregoing, Seller makes no representation or warranty to FPA with respect to any
financial projection or forecast relating to the Businesses and neither FPA nor
Purchasing Subsidiary makes any representation or warranty to Seller with
respect to any financial projection or forecast relating to FPA's business.
With respect to any projection or forecast delivered by or on behalf of any
party hereto to any other party hereto, the party receiving such information
acknowledges that (i) there are uncertainties inherent in attempting to make
such projections and forecasts, (ii) such party is familiar with such
uncertainties,
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<PAGE>
(iii) such party is taking full responsibility for making its own evaluation of
the adequacy and accuracy of all such projections and forecasts furnished to it
and (iv) such party shall have no claim against the party furnishing such
information with respect thereto.
11.3 Indemnification by Seller. Except as otherwise expressly provided in
-------------------------
this Article 11, Seller shall defend, indemnify and hold harmless FPA and shall
----------
reimburse FPA for, from and against, each and every demand, claim, loss,
liability, judgment, damage, cost and expense (including without limitation,
reasonable attorneys' fees), ("Losses") imposed on or incurred by FPA, relating
------
to, resulting from or arising out of (i) any inaccuracy in any representation or
warranty made by Seller under this Agreement and such inaccuracy is not
disclosed in the Disclosure Schedule or in the Financial Statements; (ii) any
breach of a covenant of this Agreement required to be performed by Seller or
Selling Shareholder; and (iii) any taxes of FHMS, Holding Company or any of
Holding Company's subsidiaries, relating to any pre-Closing period.
11.4 Limitations on Indemnity. Notwithstanding anything to the contrary
------------------------
contained in this Agreement, no amounts of indemnity shall be payable by Seller
to FPA as a result of any claim in respect of a Loss arising under Section 11.3
------------
or by FPA to Seller as a result of a Loss arising under Section 11.5:
------------
(a) unless, until and then only to the extent that the party requesting
indemnification (the "Indemnitee") has suffered, incurred, sustained or
----------
become subject to Losses referred to in Section 11.3 (other than Losses
------------
arising from a breach of Section 5.17) or Section 11.5 (other than Losses
------------ ------------
arising from Taxes for post-Closing periods), as the case may be, which
exceed $200,000 in the aggregate;
(b) with respect to any claim for indemnification thereunder, unless
the Indemnified Person has given the Indemnifying Person proper notice in
accordance with Section 11.6, as applicable, with respect to such claim,
------------
setting forth in reasonable detail the specific facts and circumstances
pertaining thereto, (A) as soon as practical following the time at which the
Indemnified Person discovered or reasonably should have discovered such
claim (except to the extent the Indemnifying Person is not prejudiced by any
delay in the delivery of such notice) and (B) in any event prior to the
expiration of one (1) year following the Closing Date;
(c) with respect to any Loss, to the extent that the Indemnitee had a
reasonable opportunity, but failed in good faith to mitigate the Loss,
including but not limited to the failure to use commercially reasonable
efforts to recover under a policy of insurance or under a contractual right
of set-off or indemnity;
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(d) with respect to any Loss suffered, incurred or sustained by the
Indemnitee or to which it becomes subject, to the extent it arises from or
was caused by actions taken or failed to be taken by the Indemnitee or any
of its Affiliates after the Closing.
Notwithstanding anything else contained herein, the maximum amount for which
Seller or FPA may be liable under this Article 11, in the aggregate for all
----------
claims made and Losses suffered by the other, shall be equal to Twenty Million
U.S. Dollars ($20,000,000), provided, however, that Seller shall indemnify FPA
-------- -------
for all Losses arising from a breach of Section 5.17 and, provided, further,
------------ -------- -------
that FPA shall indemnify Seller from all Losses arising from Taxes for any post-
Closing period.
11.5 Indemnification by FPA. Except as otherwise expressly provided in this
----------------------
Article 11, FPA shall defend, indemnify and hold harmless Seller and shall
- ----------
reimburse Seller for, from and against all Losses imposed on or incurred by
Seller, relating to, resulting from or arising out of (i) any inaccuracy in any
representation or warranty made by FPA under this Agreement, which inaccuracy is
not disclosed in the Disclosure Schedule or in the FPA Financial Statements (ii)
any breach of a covenant of this Agreement required to be performed by FPA or
Purchasing Shareholder; and (iii) any taxes of FHMS, Holding Company or any of
Holding Company's subsidiaries, relating to any post-Closing period.
11.6 Notice and Defense of Third-Party Claims. If any action, claim or
----------------------------------------
proceeding shall be brought or asserted under this Section 11.6 against an
------------
indemnified party or any successor thereto (the "Indemnified Person") in respect
------------------
of which indemnity may be sought under this Article 11 from an indemnifying
----------
person or any successor thereto (the "Indemnifying Person"), the Indemnified
-------------------
Person shall give prompt written notice of such action or claim to the
Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all expenses; the Indemnified Person shall have the right to employ
separate counsel in any of the foregoing actions, claims or proceedings and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Person unless both the Indemnified
Person and the Indemnifying Person are named as parties and the Indemnified
Person and the Indemnifying Person shall in good faith determine that the
representation by the same counsel is inappropriate. In the event that the
Indemnifying Person, within ten days after notice of any such action or claim,
fails to assume the defense thereof, the Indemnified Person shall have the right
to undertake the defense, compromise or settlement of such action, claim or
proceeding for the account of the Indemnifying Person, subject to the right of
the Indemnifying Person to assume, at its expense, the defense of such action,
claim or proceeding with counsel reasonably satisfactory to the Indemnified
Person at any time
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prior to the settlement, compromise or final determination thereof. Anything in
this Article 11 to the contrary notwithstanding, the Indemnifying Person shall
----------
not, without the Indemnified Person's prior written consent, settle or
compromise any action or claim or consent to the entry of any judgment with
respect to any action, claim or proceeding for anything other than money damages
paid by the Indemnifying Person. The Indemnifying Person may, without the
Indemnified Person's prior written consent, settle or compromise any such
action, claim or proceeding or consent to entry of any judgment with respect to
any such action or claim that requires solely the payment of money damages by
the Indemnifying Person and that includes as an unconditional term thereof the
release by the claimant or the plaintiff of the Indemnified Person from all
liability with respect to such action, claim or proceeding.
11.7 Limitation. An Indemnifying Person shall have no liability under this
----------
Article 11 unless notice of a claim for indemnity, or notice of facts as to
- ----------
which an indemnifiable Loss is expected to be incurred, shall have been given
prior to ninety days after the expiration of the appropriate statute of
limitations with respect thereto, as the same may be extended from time to time
by the Indemnifying Person.
11.8 Exclusivity. Except as otherwise specifically provided herein, the
-----------
provisions of this Article 11 shall be the exclusive basis for the assertion of
----------
claims by or imposition of liability on the parties hereto arising under or as a
result of this Agreement. Section 11.4 shall not apply to any fraudulent
misrepresentation.
11.9 Right of Set-off. The parties hereto agree that Seller may satisfy any
----------------
obligation to pay any amount to FPA arising under this Article 11 or Section
-------
10.7 by, at Seller's option, either (i) paying cash, (ii) foregoing interest
- ----
payments due under the Bridge Note and/or the Consolidated Note equal to the
amount so payable by Seller or (iii) reducing the principal amount of the Bridge
Note and/or the Consolidate Note by the amount so payable. In addition, if FPA
is finally determined under this Agreement to be obligated to pay Seller any
amount under this Article 11 or Section 10.7, Seller may withhold any amounts
------------
due from Seller or any of Seller's Affiliates to FPA or any of FPA's Affiliates
under any provider agreement, (including the Professional Group Provider
Agreements) which amount will be set-off against the amount so payable,
provided, however, that the amount withheld under any provider agreement in any
- -------- -------
month may not exceed five percent of the total amount due under such provider
agreement for such month.
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ARTICLE 12
MISCELLANEOUS
-------------
12.1 Termination.
-----------
(a) Termination. This Agreement may be terminated at any time prior
-----------
to Closing:
(i) By mutual written consent of FPA and Seller or Selling
Shareholder;
(ii) By FPA if there is a material breach of any representation or
warranty set forth in Article 5 hereof or any covenant or agreement to
be complied with or performed by Seller or Selling Shareholder pursuant
to the terms of this Agreement which would render impossible the
satisfaction of a condition set forth in Article 9 (and such condition
is not waived in writing by FPA);
(iii) By Seller or Selling Shareholder if there is a material
breach of any representation or warranty set forth in Article 6 hereof
or of any covenant or agreement to be complied with or performed by
FPA, Purchasing Subsidiary or Purchasing Shareholder pursuant to the
terms of this Agreement which would render impossible the satisfaction
of a condition set forth in Article 8 (and such condition is not waived
in writing by Seller); or
(iv) By any party hereto if the Closing has not occurred by
October 31, 1996.
(b) In the Event of Termination. In the event of termination of this
---------------------------
Agreement:
(i) Each party hereto will redeliver all documents, work papers
and other material of each other party hereto relating to the
transactions contemplated by this Agreement and the Related Agreements,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(ii) The provisions of the Confidentiality Agreement shall
continue in full force and effect; and
(iii) No party hereto shall have any liability or further
obligation to any other party to this Agreement or the Related
Agreements, except (x) as stated in subsections (i) , (ii), (iv), (v)
and (vi) of this Section 12.1(b), and (y) for any willful breach of
---------------
this Agreement occurring prior to the proper termination of this
Agreement.
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<PAGE>
(iv) If this Agreement is not consummated because either Seller or
FPA breaches a material representation or warranty or fails to perform
a material covenant contained herein, and the other party has not
breached any material representation or warranty or failed to perform a
material covenant, and the non-breaching party chooses to terminate
this Agreement as a direct result of such breach or failure, the
breaching party shall promptly pay the non-breaching party (x) up to
$500,000 to reimburse the non-breaching party for its documented
expenses (including the fees and expenses of counsel, accountants,
consultant and advisors) incurred in connection with the transactions
contemplated by this Agreement (the "Expenses") and (y) a fee of
$1,000,000 as liquidated damages.
(v) If this Agreement is not consummated because Seller or FPA
does not obtain necessary board or stockholder approval, then such
party failing to obtain such approval shall pay the other party
promptly up to $500,000 in Expenses.
(vi) If this Agreement is not consummated for any reason, in
addition to any payments described in this Section, the Seller shall
pay FPA promptly $3,000,000, which may be paid in a reduction in
principal of any existing indebtedness owed by FHC and its affiliates
to FPA and its affiliates, including any affiliated medical groups.
12.2 Assignment and No Third Party Beneficiaries. Neither this Agreement
-------------------------------------------
nor any of the rights or obligations hereunder may be assigned by any party
without the prior written consent of the other parties. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, and no
other person shall have any right, benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
12.3 Notices. All notices, requests, demands and other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by facsimile; the day after being sent, if sent for
next day delivery by recognized overnight delivery service (e.g., Federal
-------------
Express); and upon receipt, if sent by certified or registered mail, return
- -------
receipt requested. In each case notice shall be given as follows:
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<PAGE>
If to Seller or Selling Shareholder, addressed to:
Foundation Health Corporation
3400 Data Drive
Rancho Cordova, California 95670
Facsimile Number: (916) 631-5335
Attention: Kirk A. Benson, President and Chief
Operating Officer - Commercial Operations
With a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Facsimile Number: (415) 983-1200
Attention: Linda C. Williams, Esq.
If to FPA, Purchasing Subsidiary or Purchasing Shareholder, addressed
to:
FPA Medical Management,Inc.
2878 Camino Del Rio South, Suite 301
San Diego, California 92108-3846
Facsimile Number: (619) 299-0708
Attention: Dr. Seth M. Flam,
Chief Executive Officer
With copies to:
FPA Medical Management,Inc.
2878 Camino Del Rio South, Suite 301
San Diego, California 92108-3846
Facsimile Number: (619) 299-0708
Attention: James A. Lebovitz, Esq.
Senior Vice President, General Counsel and
Secretary
and
Latham & Watkins
701 B Street, Suite 2100
San Diego, California 92101-8197
Facsimile Number: (619) 696-7419
Attention: Andrew Singer, Esq.
or to such other place and with such other copies as a party may designate as to
itself by written notice to the others.
12.4 Choice of Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of Delaware as applied to
contracts entered into solely between residents of, and to be performed entirely
in, such state.
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<PAGE>
12.5 Entire Agreement; Amendments and Waivers. This Agreement and the
----------------------------------------
Related Agreements to which the parties hereto are parties, together with all
exhibits and schedules to be attached hereto and thereto (including the
Disclosure Schedule), constitute or will constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersede or will
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, other than the Confidentiality
Agreement. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. No amendment, supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed to or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
12.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by original or facsimile signature if the party executing this
Agreement by facsimile signature delivers an original signature to the other
parties hereto promptly thereafter.
12.7 Expenses. Except as otherwise specified in this Agreement, each party
--------
hereto shall pay its own legal, accounting, out-of-pocket and other expenses
incident to this Agreement and to any action taken by such party in preparation
for carrying this Agreement into effect.
12.8 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any Related Agreement, shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, then to the
maximum extent permitted by law, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
12.9 Publicity. Except as may be required by law, FPA shall not and shall
---------
not permit any of its Affiliates to and Seller and Selling Shareholder shall not
and shall not permit any of their respective Affiliates to, issue any press
release or make any public statement regarding the transactions contemplated
hereby or by the Related Agreements, without prior written approval of the
other. FPA and Seller will issue joint press releases or public announcements
after the execution and delivery of this Agreement and after the Closing.
Seller, Selling Shareholder, FPA and Purchasing Shareholder each agree to
portray the others in a positive light to enrollees and patients of the parties,
other providers and the investment and financial community.
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<PAGE>
12.10 Schedules. The inclusion of any item in one schedule hereto
---------
comprising part of the Disclosure Schedule shall be deemed for purposes of this
Agreement to be an inclusion of such item in all schedules comprising part of
the Disclosure Schedule.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
SELLER FPA
By: /s/ Daniel D. Crowley By: /s/ Seth Flam
--------------------------- ------------------------------
Name: Daniel D. Crowley Name: Seth Flam
--------------------- ------------------------
Title: President and Chief Title: Chief Executive Officer
-------------------- -----------------------
Executive Officer
--------------------
PURCHASING SHAREHOLDER PURCHASING SUBSIDIARY
By: /s/ Seth Flam By: /s/ Seth Flam
------------------------- -------------------------
Name: Seth Flam Name: Seth Flam
------------------- -------------------
Title: President Title: President
------------------ ------------------
SELLING SHAREHOLDER
By: /s/ Jonathan Scheff, M.D.
--------------------------
Name: Jonathan Scheff
------------------
Title:
-----------------
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