**Exhibit 2.2**

**AGREEMENT AND PLAN OFREORGANIZATION**

**AMONG**

**PROSPECT MEDICAL GROUP,INC.,**

**PROSPECT POMONA MEDICALGROUP, INC.,**

**PROSPECT MEDICALHOLDINGS, INC.,**

**POMONA VALLEY MEDICALGROUP, INC.(dba ProMed Health Medical Group Network of Pomona Valley Inc.),**

**THE PROMED EXECUTIVEOFFICERS,**

**AND**

**THEPRINCIPAL PROMED SHAREHOLDERS**

**Dated as of: May 21, 2007**

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**AGREEMENT AND PLANOF REORGANIZATION**

This Agreement and Plan of Reorganization (the *“Agreement”*)is dated as of May 21, 2007 by and among Prospect Medical Group, Inc., aCalifornia professional corporation (*“**Group”*),Prospect Pomona Medical Group, Inc., a California professional corporation andwholly-owned subsidiary of Group (*“Group Subsidiary”*),Prospect Medical Holdings, Inc., a Delaware corporation and an affiliate ofGroup and Group Subsidiary (*“Holdings”*),Pomona Valley Medical Group, Inc., dba ProMed Health Medical Group Network ofPomona Valley Inc., a California professional corporation (*“ProMed Pomona”*), certain executiveofficers of ProMed Pomona defined herein as the *“ProMedExecutive Officers”*, and the shareholders of ProMed Pomona definedherein as the *“Principal ProMed Shareholders”* who arelisted, and are signatories, on the signature pages to this Agreement or whootherwise became a party to the Agreement by joinder.** **ThePrincipal ProMed Shareholders together with ProMed Pomona are collectivelyreferred to herein as the *“ProMed Parties”.*

**RECITALS**

A.            WHEREAS, ProMed Pomona is a licensed California professional corporation thatoperates as an independent practice association and, as such, contracts withprimary care and specialty physicians (“*ProMedPomona Provider Contracts*”) and providers of ancillary services (*“ProMed Pomona Ancillary Service Contracts”*)to provide professional medical services to patients (*“ProMed Pomona Enrollees”*) throughcontracts with health plans (*“ProMed Pomona Health PlanContracts”*);

B.            WHEREAS,ProMed HealthServices Company, a California corporation (*“ProMedCompany”*), through its wholly-owned subsidiary, ProMed Health CareAdministrators, a California corporation (*“ProMedHCA”*) providesmanagement and administrative services to independent practice associations andmedical groups pursuant to long-term management agreements, and in suchcapacity has a management agreement with ProMed Pomona (*“ProMed Pomona Management Agreement”*);

C.            WHEREAS, as a result of certain commonofficers, directors and/or shareholders, ProMed Pomona is an affiliate ofProMed Company, ProMed HCA and Upland Medical Group, A Professional MedicalCorporation, dba Upland Medical Group A Professional Corporation, a Californiaprofessional corporation (*“ProMed Upland”*),which also operates as anindependent practice association;

D.            WHEREAS,Group is a licensed California professional corporation that operates as anindependent practice association and, as such, contracts with physicians toprovide professional medical services to patients through contracts with healthplans;

E.             WHEREAS,Holdings is an affiliate of Group and, through Holdings’ subsidiaries, providesmanagement and administrative services to independent practice associationspursuant to long-term management agreements, and in such capacity has amanagement agreement with Group and each of Group’s subsidiaries, whichprovides, among other things, for the issuance of Holdings’ stock in connectionwith certain acquisitions by Group or Group’s subsidiaries;

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F.             WHEREAS, the parties intend that, subjectto the terms and conditions hereinafter set forth, Group Subsidiary shall bemerged with and into ProMed Pomona, with ProMed Pomona the survivingcorporation and continuing as a subsidiary of Group (the *“Merger”*),pursuant to an Agreement of Merger, and accompanying officer certificates,substantially in the form attached hereto as Exhibit A (collectively, the *“Agreement of Merger”*) and the applicable provisions of thelaws of the State of California;

G.            WHEREAS, the Board of Directors of eachof Group, Group Subsidiary and ProMed Pomona deem it advisable and in the bestinterests of their respective shareholders to consummate, and have approved,the Merger;

H.            WHEREAS, pursuant to the Merger, amongother things, and subject to the terms and conditions of this Agreement, all ofthe issued and outstanding shares of capital stock of ProMed Pomona shall beconverted into the right to receive the consideration provided in Section 1.6hereof;

I.              WHEREAS, the Board of Directors of ProMedPomona has (i) determined that the consideration to be paid in the Merger tothe shareholders of ProMed Pomona for each ProMed Pomona Share (as defined inSection 1.6(a)) held by them is fair to and in the best interests of theshareholders of ProMed Pomona, (ii) approved this Agreement and thetransactions contemplated hereby, and (iii) recommended to such shareholdersthat they approve the Merger and this Agreement;

J.             WHEREAS, in a transaction to accompanythe Merger, (i) Group is acquiring all the stock of ProMed Upland withProMed Upland constituting a new subsidiary of Group  (the *“ProMedUpland Acquisition”*) and (ii) Holdings, through a subsidiary,is merging with the ProMed Company, with ProMed Company as the survivor andconstituting a new subsidiary of Holdings (the *“ProMedCompany Acquisition”*);

K.            WHEREAS, the following individuals areexecutive officers of ProMed Pomona, ProMed Company, ProMed HCA and ProMedUpland: (i) Jeereddi Prasad, M.D., President of ProMed Company, ProMed HCA,ProMed Pomona and ProMed Upland, (ii) Kishan Thapar, M.D., the Chief ExecutiveOfficer, Executive Director and Chief Medical Officer of ProMed Pomona and theExecutive Director of ProMed Company and ProMed HCA and the Executive Directorand Chief Medical Officer of ProMed Upland, and (iii) Bahram Barhemand, theChief Financial Officer of ProMed Company, ProMed HCA, ProMed Pomona and ProMedUpland (each, a *“ProMed Executive Officer”* andcollectively, the*“ProMed Executive Officers”)*;

L.             WHEREAS, Exhibit B of this Agreement setsforth the shareholders of ProMed Pomona which, as a result of the number ofshares they own in ProMed Pomona when combined with the shares they own inProMed Company, if any, will entitle such shareholders to aggregate MergerConsideration herein and consideration therein, if any, equal to or exceedingan aggregate of $650,000.00 (each, a *“Principal ProMedShareholder”* and collectively, the *“PrincipalProMed Shareholders”*);

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M.           WHEREAS, the Principal ProMed Shareholdersshall be either initial signatories to this Agreement, or shall become a partyto this Agreement prior to the Merger by means of the execution of a joinderagreement in the form of Exhibit C hereto (the *“JoinderAgreement”*); and

N.            WHEREAS, Group, Group Subsidiary,Holdings and the ProMed Parties desire to make certain representations andwarranties and other agreements in connection with the Merger.

**AGREEMENT**

NOW, THEREFORE, in reliance on the foregoing recitals and in and forthe consideration and representations, warranties, agreements and covenants setforth herein, the parties hereto hereby agree as follows:

**ARTICLE 1.**

**THE MERGER**

 

1.1           The Merger.  At theEffective Time (as defined in Section 1.2) and subject to and upon the termsand conditions of this Agreement and the applicable provisions of theCorporations Code of the State of California (the *“CaliforniaCode”*), Group Subsidiary shall be merged with and into ProMedPomona, the separate corporate existence of Group Subsidiary shall cease andProMed Pomona shall continue as the surviving corporation and as a wholly-ownedsubsidiary of Holdings.  ProMed Pomona asthe surviving corporation after the Merger is hereinafter sometimes referred toas the *“Surviving Corporation”*.

1.2           Effective Time.  The closing(the *“Closing”*) of the Merger and the othertransactions contemplated by this Agreement (the *“Transaction”*)shall take place at 10:00am at the offices of Theodora Oringher Miller &Richman, PC, 2029 Century Park East, 6th Floor, Los Angeles, California on June 1,2007, in the event the conditions precedent to the performance of Group, GroupSubsidiary, Holdings and the ProMed Parties as set forth in Article 6 hereofare satisfied or waived on or before June 1, 2007 (the *“ClosingDate”*).  On the Closing Date,the parties hereto shall cause the Merger to be consummated by filing theAgreement of Merger with the Secretary of State of the State of California inaccordance with the relevant provisions of applicable law.  The date and time the Merger becomeseffective in accordance with the provisions of the California Code is the *“Effective Time”*.

1.3           Effect of the Merger.  At theEffective Time, the effect of the Merger shall be as provided in the applicableprovisions of the California Code. Without limiting the generality of the foregoing, and subject thereto,at the Effective Time, all the property, rights, privileges, powers andfranchises of ProMed Pomona and Group Subsidiary shall vest in the SurvivingCorporation, and all debts, liabilities and duties of ProMed Pomona and GroupSubsidiary shall become the debts, liabilities and duties of the SurvivingCorporation.

1.4           Articles of Incorporation; Bylaws.

(a)           Unless otherwise determined by Group prior to theEffective Time, at the Effective Time, the Articles of Incorporation of ProMedPomona shall be the Articles of Incorporation of the Surviving Corporation asamended and restated as provided in Exhibit A of the Agreement of Merger.

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(b)           The Bylaws of Group Subsidiary, as in effectimmediately prior to the Effective Time, shall be the Bylaws of the SurvivingCorporation until thereafter amended.

1.5           Directors and Officers.  Thedirector(s) of Group Subsidiary immediately prior to the Effective Time shallbecome the director(s) of the Surviving Corporation at the Effective Time, eachto hold office in accordance with the Articles of Incorporation and Bylaws ofthe Surviving Corporation.  The officersof Group Subsidiary immediately prior to the Effective Time shall become theofficers of the Surviving Corporation at the Effective Time, each to holdoffice in accordance with the Bylaws of the Surviving Corporation.

1.6           Merger Consideration: Effect on Capital Stock. Subject to the terms and conditions of this Agreement, as of theEffective Time, by virtue of the Merger and without any action on the part ofGroup, Group Subsidiary, ProMed Pomona or the holder of any shares of ProMedPomona capital stock the following shall occur:

(a)           *Conversion of ProMed Pomona Shares.* Each share of ProMed Pomona capital stock issued and outstandingimmediately prior to the Effective Time (other than any Dissenting Shares (asdefined and to the extent provided in Section 1.7(a)) (each, a *“ProMed Pomona Share”*, collectively, the *“ProMed Pomona Shares”*) will be canceled and extinguishedand be converted automatically into the right to receive, upon surrender of thecertificate representing such ProMed Pomona Share in the manner provided inSection 1.8, the aggregate consideration of Twenty-One Million One HundredSeventy-Five Thousand Five Hundred Eighteen and No/100 Dollars ($21,175,518.00)as set forth in (i) and (ii) below, *divided by, in each case,the number of ProMed Pomona Shares outstanding at the Effective Time (on afully diluted basis)*(the *“Merger Consideration”*).

(i)            An amount of cash equal to Seventeen Million FiveHundred Seventy-Five Thousand Six Hundred Eighty and 00/100 Dollars($17,575,680.00), or, if Holdings makes the election set forth in (iii) below,such greater amount of cash, in immediately available funds (the *“Cash Consideration”*).

(ii)           The balance of the Merger Consideration shall be paidin shares of the common stock of Holdings, par value $0.01 per share (*“Holdings Common Stock”*) with the number of sharesdetermined by dividing (i) the dollar amount of the balance of the MergerConsideration being paid in Holdings Common Stock by (ii) the average of theclosing sales prices of Holdings Common Stock as reported by the American StockExchange for the thirty (30) consecutive trading days preceding the day onwhich Holdings makes a public announcement concerning the execution of thisAgreement (the *“Stock Consideration”*).Certificates for fractions of shares of Holdings Common Stock will not beissued. In lieu of a fraction of a share of Holdings Common Stock, each holderof ProMed Pomona Shares otherwise entitled to a fraction of a share of HoldingsCommon Stock shall be entitled to receive an amount of cash equal to thefraction of a share of the Holdings Common Stock to which such holder wouldotherwise be entitled, multiplied by the average 30 day closing sale pricereferenced above for Holdings’ Common Stock.

(iii)          Notwithstanding anything to the contrary herein, whilethe Merger Consideration will remain the aggregate amount set forth in Section1.6(a) herein, Group and 

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Holdings have the option at any time prior to theEffective Time, to reduce the amount of the Stock Consideration and increasethe amount of the Cash Consideration by a like amount resulting in shareholdersof ProMed Pomona receiving more cash and less Holdings Common Stock.  Group’s and Holdings’ option to alter theStock Consideration and Cash Consideration by a like amount is limited toreductions in Stock Consideration and increases in Cash Consideration and thusGroup’s and Holdings’ option under this Section 1.6(a)(iii) does not permitGroup or Holdings to reduce the Cash Consideration below the amount set forthin Section 1.6(a)(i) above.

*Example:*  Currentlyunder (i) and (ii) above, Group and Holdings are paying 83% of the MergerConsideration in cash and 17%, constituting the balance, in Holdings CommonStock. Assuming for purposes of this example that Group and Holdings choose todecrease the Stock Consideration from the current 17% to 15% of the totalMerger Consideration, the Stock Consideration would be reduced from the currentbalance of $3,599,838 to $3,176,328 (15% of $21,175,518) and the CashConsideration would increase from $17,575,680 to $17,999,190 (85% of$21,175,518).

(b)           *Capital Stock of Group Subsidiary*. Each share of capital stock of Group Subsidiary issued and outstandingimmediately prior to the Effective Time shall be converted into and exchangedfor one validly issued, fully paid and nonassessable share of capital stock ofthe Surviving Corporation.  Each stockcertificate of Group Subsidiary evidencing ownership of any such shares shallcontinue to evidence ownership of such shares of capital stock of the SurvivingCorporation.

1.7           Dissenting Shares.

(a)           Notwithstanding any provision of this Agreement to thecontrary, any ProMed Pomona Shares held by a holder who has demanded andperfected dissenters’ rights for such shares in accordance with the CaliforniaCode and who, as of the Effective Time, has not effectively withdrawn or lostsuch dissenters’ rights (*“Dissenting Shares”*),shall not be converted into or represent a right to receive the MergerConsideration pursuant to Section 1.6, but the holder thereof shall only beentitled to such rights as are granted by the California Code.

(b)           Notwithstanding the provisions of subsection (a), ifany holder of ProMed Pomona Shares who demands dissenters’ rights with respectto such shares under the California Code shall effectively withdraw or lose(through failure to perfect or otherwise) such dissenters’ rights, then, as ofthe later of the Effective Time and the occurrence of such event, such holder’sshares shall automatically be converted into and represent only the right toreceive the Merger Consideration as provided herein, without interest thereon,upon surrender of the certificate representing such shares.

(c)           ProMed Pomona shall give Group (i) prompt notice ofany written demands of dissenters’ rights with regard to any ProMed PomonaShares, withdrawals of such demands, and any other instruments served pursuantto the California Code and received by ProMed Pomona and (ii) the opportunityto participate in all negotiations and proceedings with respect to demands fordissenters’ rights under the California Code. ProMed Pomona shall not, except with the prior written consent of Group,voluntarily make any payment with respect to 

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any demands for dissenters’ rights with regard toProMed Pomona Shares or offer to settle or settle any such demands.

1.8           Surrender of Certificates.

(a)           *Exchange Procedures.* Prior to the Closing, ProMed Pomona shall cause to be mailed to eachholder of record of a certificate or certificates (the *“Certificates”*)which immediately prior to the Effective Time represented outstanding ProMedPomona Shares whose shares were converted into the right to receive the MergerConsideration pursuant to Section 1.6, as set forth on Schedule 2.6hereto, (i) a letter of transmittal (which shall specify that delivery shall beeffected, and risk of loss and title to the Certificates shall pass to Grouponly at the Effective Time, which letter shall be in such form, and have suchother provisions, as ProMed Pomona may reasonably specify) and (ii)instructions for effecting the surrender of the Certificates in exchange forsuch holder’s share of the Merger Consideration as set forth in Section 1.6,including the cash in lieu of fractional shares into which each ProMed PomonaShare represented by such Certificate or Certificates shall have beenconverted pursuant to this **Agreement.******Upon thelater of (i) the Closing Date or (ii) the date of the surrender of aCertificate for cancellation to Group, the holder of such Certificate shall beentitled to receive promptly thereafter in exchange therefor the amount of CashConsideration and Stock Consideration to which such holder is entitled underSection 1.6 in respect of the ProMed Pomona Shares represented by suchCertificate, and the Certificate so surrendered shall forthwith becancelled.  With respect to the StockConsideration, Holdings shall promptly issue instructions to its transfer agent(*“Transfer Agent”*) to issue thecertificates representing shares of Holdings Common Stock to each ProMed Pomonashareholder upon Holdings’ receipt of the surrendered Certificate.  Until so surrendered, each outstanding Certificatethat, prior to the Effective Time, represented ProMed Pomona Shares will bedeemed from and after the Effective Time, for all corporate purposes, toevidence only the right to receive the applicable Cash Consideration and StockConsideration specified above, without interest.

(b)           *No Liability.* Notwithstanding anything to the contrary in this Section 1.8, neitherHoldings nor the Surviving Corporation hereto shall be liable to a holder ofProMed Pomona Shares for any amount properly paid to a public official pursuantto any applicable abandoned property, escheat or similar law.

1.9           No Further Ownership Rights in ProMed Pomona Shares. All Merger Consideration paid by Group,Group Subsidiary or Holdings, directly or indirectly through the Transfer Agentin the case of Holdings’ Common Stock, upon the surrender for exchange ofProMed Pomona Shares in accordance with the terms hereof shall be deemed tohave been issued in full satisfaction of all rights pertaining to such ProMedPomona Shares, and there shall be no further registration of transfers on therecords of the Surviving Corporation of ProMed Pomona Shares which wereoutstanding immediately prior to the Effective Time.  If, after the Effective Time, Certificatesare presented to Group, Holdings, the Transfer Agent or the SurvivingCorporation for any reason, they shall be cancelled and exchanged as providedin this Article 1.

1.10         Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing ProMed Pomona Shares shall havebeen lost, stolen or destroyed, Holdings shall issue, and to with respect tothe Stock Consideration shall cause the Transfer Agent to issue, in exchangefor 

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such lost, stolen or destroyed certificates, upon themaking of an affidavit by the holder thereof, acceptable to the Transfer Agent,Group and Holdings, such Merger Consideration, if any, as may be requiredpursuant to Section 1.6, provided, however, that Holdings or the Transfer Agentmay, in their discretion and as a condition precedent to the issuance thereof,require the owner of such lost, stolen or destroyed certificates to execute alost stock affidavit and indemnity to indemnify against any claim that may bemade against the Surviving Corporation, Group, Holdings or the Transfer Agentwith respect to the certificates alleged to have been lost, stolen ordestroyed.

1.11         Required Withholding.  Group,Holdings and/or the Surviving Corporation shall be entitled to deduct andwithhold from any consideration payable or otherwise deliverable pursuant tothis Agreement to any holder or former holder of ProMed Pomona Shares, withnotice to such holder or former holder, such amounts as are required to bededucted or withheld therefrom under the Internal Revenue Code of 1986, asamended or under any provision of state, local or foreign tax law or under anyother applicable legal requirement.  Tothe extent such amounts so deducted or withheld are paid to the appropriategovernmental entity, such amounts shall be treated for all purposes under thisAgreement as having been paid to the person to whom such amounts wouldotherwise have been paid.

1.12         Tax and Accounting Consequences. Each party has consulted with its own tax advisors and accountants withrespect to the tax and accounting consequences, respectively, of the Merger.

1.13         Unclaimed Merger Consideration. Any portion of the Merger Consideration made available by Group orHoldings, either directly or indirectly though the Transfer Agent, pursuant tothis Article 1 and not exchanged for ProMed Pomona Shares after the EffectiveTime pursuant to Section 1.8 above shall be held by Group, Holdings and/or theTransfer Agent, subject to the rights of holders of unsurrendered Certificatesunder this Article 1.  Thereafter suchholders shall be entitled to look to only to such retained Merger Consideration(subject to abandoned property, escheat and other similar laws) with respect toany amount that may be payable upon due surrender of the Certificates held bythem.

1.14         Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action isnecessary or desirable to carry out the purposes of this Agreement and to vestthe Surviving Corporation with full right, title and possession to all assets,property, rights, privileges, powers and franchises of ProMed Pomona and GroupSubsidiary, the officers and directors of ProMed Pomona and Group Subsidiaryare fully authorized in the name of their respective corporations or otherwiseto take, and will take, all such lawful and necessary action.

1.15         Escrow.  At theClosing the parties shall deposit $1,200,000 in cash (such cash, together withall earnings thereon is referred to as the *“Escrow Cash”*)deducted from the total Merger Consideration otherwise payable to each of theCompany’s shareholders on a pro-rata basis, in an escrow account (*“Indemnification Escrow Account”*) to be held in suchIndemnification Escrow Agreement during the period ending two (2) years fromthe Effective Date (*“Escrow Period”*),pursuant to the terms of an escrow agreement (*“EscrowAgreement”*) negotiated prior to the Closing by ProMed Pomona, theRepresentative (as defined in Section 1.16 (a) 

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and Group, with an escrowagent mutually acceptable to the parties (*“Escrow Agent”*).  The Indemnification Escrow shall provide asource of funds for the indemnity obligations set forth in Section 7.2(a) ofthis Agreement and, to the extent provided in Section 7.6, the indemnityobligations set forth in Section 7.2(a) of the agreement and plan ofreorganization for the ProMed Company Acquisition (the *“ProMedCompany Acquisition Agreement”*). The Indemnification Escrow Account established pursuant to this Section1.15 and the indemnification escrow account established pursuant to Section1.15 of the ProMed Company Acquisition Agreement shall be collectively referredto as the *“Indemnification Escrow Fund”*.  Except for those claims set forth in Sections7.2(b) and Section 7.4 of the Agreement and Sections 7.2(b) and 7.4 of theProMed Company Acquisition Agreement, the Indemnification Escrow Fund shall bethe exclusive source of indemnity funds for claims of Group, Group Subsidiary,Holdings, and Surviving Corporation or their respective directors, officers,employees, agents and affiliates.  Subject to Article 7, (i) on the first business day following the firstanniversary of the Effective Date, the Escrow Agent shall deliver 25% of theEscrow Cash in the Indemnification Escrow Account, less any such amountsapplied in satisfaction of a claim for indemnification and any amounts reservedagainst pending claims related to the indemnification obligations set forth inArticle 7 and claims related to the indemnification obligations in the ProMedCompany Acquisition, to each of ProMed Pomona’s former shareholders, aftergiving effect to the Merger (“*Former Shareholders”*)in the same proportions as initially deposited in the Indemnification EscrowAccount, and (ii) on the first business day following the conclusion of theEscrow Period, the Escrow Agent shall deliver the remaining Escrow Cash in theIndemnification Escrow Account, less any such amounts applied in satisfactionof a claim for indemnification and any amounts reserved against pending claimsrelated to the indemnification obligations set forth in Article 7 and claims relatedto the indemnification obligations in the ProMed Company Acquisition, to eachof the Former Shareholders in the same proportions as initially deposited inthe Indemnification Escrow Account.

1.16         Representative for Purposes of Escrow Agreement.

(a)           In order to administer efficiently (i) theimplementation of this Agreement and/or the Escrow Agreement on behalf of theFormer Shareholders, and (ii) the settlement of any dispute with respect tothis Agreement and/or the Escrow Agreement involving the Indemnification EscrowFund, ProMed Pomona shall, prior to the Effective Time, designate one to threepersons to act as a representative on behalf of the Former Shareholders(collectively, the *“Representative”*). By approving this Agreement, ProMed Pomona’s shareholders authorize and empowerProMed Pomona to make such designation, approve and ratify all of the rights,powers and authorities provided to the Representative under the terms of thisAgreement, and agree to be bound by all decisions and other actions taken bythe Representative.

(b)           From and after the Effective Time, the FormerShareholders hereby authorize the Representative (i) to take all actionnecessary in connection with the implementation of the Agreement on behalf ofthe Former Shareholders or the settlement of any dispute, including, withoutlimitation, with regard to matters pertaining to the indemnification provisionsof this Agreement and the Escrow Agreement, (ii) to give and receive allnotices 

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required to be given under the Agreement and theEscrow Agreement, and (iii) to take any and all additional action as iscontemplated to be taken by or on behalf of the Former Shareholders by theterms of this Agreement and the Escrow Agreement.

(c)           If no Representative is ever appointed or if anyRepresentative dies, becomes legally incapacitated or resigns from suchposition, another Person designated by the remaining Representatives, or ifnone remain, by the Former Shareholders holding the right to receive more than50% in interest of the Escrow Cash (the *“Requisite FormerShareholders”*), who shall be identified to Group as soon aspracticable, shall fill such vacancy and shall be deemed to be theRepresentative for all purposes of this Agreement; provided, however, that nochange in the Representative shall be effective until Group is given writtennotice of such change.  If no Representative is then currently serving,the Representative shall be deemed to be the Requisite Former Shareholders.

(d)           All decisions and actions by the Representative asprovided in this Section 1.16 or under the Escrow Agreement shall be bindingupon all of the Former Shareholders, and no Former Shareholders shall have theright to object, dissent, protest or otherwise contest the same.

(e)           By their execution and/or approval of this Agreementand the Merger, ProMed Pomona and its shareholders agree that:

(i)            Group, the Surviving Corporation and the Escrow Agentshall be able to rely conclusively on the instructions and decisions of theRepresentative as to any actions required or permitted to be taken by theRepresentative hereunder and under the Escrow Agreement, and no party hereundershall have any cause of action against Group, the Surviving Corporation or theEscrow Agent for any action taken by Group, the Surviving Corporation or theEscrow Agent in reliance upon the instructions or decisions of theRepresentative;

(ii)           all actions, decisions and instructions of theRepresentative shall be conclusive and binding upon all of the FormerShareholders and no Former Shareholder shall have any cause of action againstthe Representative for any action taken, decision made or instruction given bythe Representative under this Agreement, the Escrow Agreement, except for fraudor willful breach of this Agreement by the Representative; and

(iii)          the provisions of this Section 1.16 are independentand severable, shall constitute an irrevocable power of attorney, coupled withan interest and surviving death, granted by the Former Shareholders to theRepresentative and shall be binding upon the executors, heirs, legalrepresentatives and successors of each Former Shareholder.

(iv)          In taking any action hereunder and under the EscrowAgreement, the Representative shall be protected in relying upon any notice,paper or other document reasonably believed by it to be genuine, or upon anyevidence reasonably deemed by it, in its good faith judgment, to be sufficient;provided, however, that the Representative shall not waive any rights withrespect to any individual Former Shareholder(s)’ interest(s) if such waiverwould have the effect of disproportionately and adversely affecting suchindividual Former Shareholder(s) as compared to the interests of the otherFormer Shareholders, without the prior 

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consent of the affected Former Shareholder(s). The Representative shall not be liable to Group or the Former Shareholders forany act performed or omitted to be performed by him in the good faith exerciseof his duties and shall be liable only in the case of fraud or willful breachof this Agreement by the Representative.  The Representative may consultwith counsel in connection with his duties hereunder and shall be fullyprotected in any act taken, suffered or permitted by him in good faith inaccordance with the advice of counsel.  The Representative shall not beresponsible for determining or verifying the authority of any person acting orpurporting to act on behalf of any party to this Agreement.

1.17         Piggy-Back RegistrationRights.   All Holdings Common Stockissued as part of the Merger Consideration shall be entitled to those “piggy-backregistration rights” set forth on Exhibit D hereof subject to each shareholder’sexecution of the Investment Representation Certificate described in Section 5.7hereof wherein, among other things, such shareholder agrees to be subject tothe terms and conditions of such piggy-back registration rights set forth inExhibit D.

**ARTICLE 2.**

**REPRESENTATIONS AND WARRANTIES OFPROMED POMONA AND THE PRINCIPAL PROMED SHAREHOLDERS**

 

In order to induce Group, Group Subsidiary and Holdings to enter intothis Agreement and to consummate the Transaction, ProMed Pomona makes therepresentations and warranties set forth in this Article 2, excepting only therepresentation and warranty in Section 2.10, which representation and warrantyis made by each of the Principal ProMed Shareholders.

2.1           Organization; Subsidiaries. ProMed Pomona is a professional corporation duly organized, validlyexisting and in good standing in the State of California.  ProMed Pomona has all requisite corporate power and authority to own,lease, and operate its assets and to carry on its business as now beingconducted.  ProMed Pomonahas no partially-owned  or wholly-ownedsubsidiaries other than the limited partnership interest in ProMed Properties, LP,a California limited partnership set forth in Section 4.9 hereof (*“ProMed LP”*).

2.2           Minute Book and Stock Records. The minute books and stock records of ProMed Pomona are complete andaccurate in all material respects and all signatures included therein are thegenuine signatures of the persons indicated as signing.  True, correct and complete copies of suchminute books and stock records (which include a complete and accurate copy ofthe Articles of Incorporation and Bylaws and all amendments to both) of ProMedPomona has previously been delivered to Group. ProMed Pomona is not in default under or in violation of any provisionof its Articles of Incorporation or its Bylaws.

2.3           Authorization.  ProMed Pomonahas the power and authority to enter into this Agreement and to consummate theTransaction.  All actions on the part ofProMed Pomona necessary for the authorization, execution, delivery andperformance of this Agreement and the consummation of the Transaction,including all necessary approvals by the shareholders of ProMed Pomona, havebeen or will be taken prior to the Closing Date, and this Agreement 

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(including exhibits, schedules and the ancillaryagreements) constitutes the legal, valid and binding obligation of each ofProMed Pomona and the Principal ProMed Shareholders enforceable against them inaccordance with its terms, except as enforceability may be restricted, limitedor delayed by applicable bankruptcy, insolvency, fraudulent conveyance, orother laws affecting creditor’s rights generally, and except as enforceabilityis subject to general principles of equity.

2.4           No Consent Required.  Except as setforth on Schedule 2.4, neither the execution and delivery of thisAgreement by ProMed Pomona or the Principal ProMed Shareholders, nor theperformance by them of their obligations under this Agreement, requires theconsent, approval, order or authorization of, or registration, declaration orfiling with any governmental entity or any third party that will not have beenobtained and delivered to Group and/or Group Subsidiary prior to the ClosingDate except for the filing of the Agreement of Merger with the Secretary ofState of the State of California.

2.5           No Violation of Other Agreements; No Conflicts.

(a)           Neither the execution and delivery of this Agreementnor the consummation or performance of the Transaction violates, conflicts withor results in a breach of, or shall violate, conflict with or result in abreach of any lease, contract, document or agreement to which any of the ProMedParties is a party or by which any of the ProMed Parties may be bound.

(b)           Neither the execution and delivery of this Agreementnor the consummation or performance of the Transaction, will, directly orindirectly (with or without the giving of notice, or lapse of time, or both):

(i)            contravene, conflict with, or result in a violation ofany provision of the organizational documents of ProMed Pomona;

(ii)           contravene, conflict with, or result in a violation ofany order, judgment or decree to which any of the ProMed Parties may besubject; or

(iii)          contravene, conflict with or result in a violation ofany of the terms or requirements, or give any governmental body the right torevoke, withdraw, suspend, cancel, terminate or modify, any governmentalauthorization that is held by any of the ProMed Parties.

2.6           Capital Structure.  Theauthorized capital stock of ProMed Pomona consists of 25,000 shares of commonstock, no par value, of which 9,822 shares are issued and outstanding.  All of the ProMed Pomona Shares have beenvalidly issued, are fully paid and non-assessable.  Schedule 2.6 contains a list of eachholder of record of ProMed Pomona Shares and the number of ProMed Pomona Shares(each, a *“ProMed Pomona Shareholder”* andcollectively, the *“ProMed Pomona Shareholders”*)held by such holders. There are no options, warrants, rights, shareholderagreements or other instruments or agreements outstanding giving any person theright to acquire any shares of capital stock of ProMed Pomona, nor are thereany commitments to issue or execute any such options, warrants, rights,shareholder agreements or other instruments or agreements.  There are no outstanding stock appreciationrights or similar rights outstanding 

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with respect to any of the capital stock of ProMedPomona nor are there any instruments, or agreements giving anyone the right toacquire any such rights.

2.7           Year End and Certain Interim Financial Statements. ProMed Pomona has provided Group with (i) the balance sheets and incomestatements of ProMed Pomona, for the fiscal year ended September 30, 2006 assuch have been audited by Deloitte & Touche LLP (the *“2006 Year End Financial Statements”*) and(ii) the unaudited interim balance sheets and income statements of ProMedPomona for the monthly periods subsequent to September 30, 2006 and endingMarch 31, 2007 (the *“March Interim FinancialStatements*”*,*which together with all monthly InterimFinancial Statements prior to March 1, 2007, the*“Interim Financial Statements”)*.  The 2006 Year End Financial Statements andthe Interim Financial Statements fairly present in all material respects thefinancial condition and results of operation of ProMed Pomona as of the dateand for the periods set forth therein and the 2006 Year End FinancialStatements and the Interim Financial Statements, have been prepared inaccordance with GAAP, applied on a consistent basis throughout the periodscovered thereby, except in the case of the 2006 Year End Financial Statements,as may be indicated in the notes thereto and except that the Interim FinancialStatements do not contain notes and, as unaudited statements, are subject tonormal recurring audit adjustments consistent with past practice.   Since the date of the March InterimFinancial Statements there has not been any material adverse change to thefinancial condition of ProMed Pomona, including no material difference in theassets and liabilities of ProMed Pomona as shown on the March Interim FinancialStatements.

2.8           No Undisclosed Liabilities.  Except as set forth on Schedule 2.8, ProMed Pomona has noliabilities or obligations of any nature (whether absolute, accrued,contingent, or otherwise) except: (i) for those shown on the 2006 Year EndFinancial Statements and the March Interim Financial Statements; and (ii) thoseincurred subsequent to March 31, 2007 in the ordinary course of businessconducted in a manner consistent with past practices and custom.   In the case of the IBNR (incurred butnot reported) claim reserve shown on the March Interim Financial Statement or, to the extent aSubsequent Monthly Financial Statement has been delivered prior to the ClosingDate as contemplated by Section 4.3, the amount shown on the latest SubsequentMonthly Financial Statement, reflects an amount of IBNR sufficient to cover allclaims for dates of service prior to the Effective Time.

2.9           Tax Matters.  ProMed Pomonais “C” corporations and has always been a “C” corporation.  ProMed Pomona has timely filed all income andfranchise tax returns required to be filed by it and has timely paid in fullall Taxes (defined below) owed by it for the periods ending on September 30,2006 and has properly accrued, in accordance with GAAP, on the March InterimFinancial Statements all Taxes for all periods ending on March 31, 2007.  Except as set forth in Schedule 2.9,all tax returns filed by or on behalf of ProMed Pomona are true, accurate andcomplete in all material respects. Except as set forth in Schedule 2.9, (i) no action or proceedingfor the assessment or collection of any Taxes is pending against ProMed Pomona,(ii) no deficiency, assessment or other formal claim for any Taxes has beenasserted or made against ProMed Pomona that has not been fully paid or finallysettled, and (iii) no issue has been formally raised by any taxing authority inconnection with an audit or examination of any return of Taxes.  Except as set forth in Schedule 2.9,no federal or state income tax returns of ProMed Pomona have been audited orexamined, and there are no outstanding agreements or waivers extending the applicablestatutory periods of limitation for such Taxes for any period.  All Taxes 

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that ProMed Pomona has been required to collect orwithhold have been duly withheld or collected and, to the extent required, havebeen paid to the proper taxing authority.  *“Taxes”* meanstaxes, charges, fees, levies, or assessments including, without limitation,income, excise, property, withholding, payroll, sales and franchise taxes,imposed by federal, state, county, local or foreign government or subdivisionor agency thereof, and including any interest, penalties or additions.

2.10         Title to ProMed Pomona Shares. Each Principal ProMed Shareholder represents and warrants that he or sheis the owner, beneficially and of record, of one hundred percent (100%) of theProMed Pomona Shares set forth opposite his or her name on Schedule 2.6, freeand clear of all liens, encumbrances, security interests, equities, options,claims, charges of other restriction of any kind (*“Liens”*).

2.11         Real Property.

(a)           Except for the indirect interest in the buildinglocated at 4150 E. Concours Street, Ontario, CA 91764 (*“OntarioBuilding”*) solely as a result of ProMed Pomona’s limited partnershipinterest in ProMed LP which owns five percent (5%) of the Ontario Building,ProMed Pomona does not own any real property, nor has it ever owned any realproperty.

(b)           ProMed Pomona does not lease, sublease or otherwisehave a right to use or to occupy any real property.

2.12         Tangible Personal Property.

(a)           ProMed Pomona has good, marketable and valid title toall tangible personal property owned by it free and clear of all Liens.

(b)           Each item of furniture, equipment and other tangiblepersonal property with an original cost of $1,000 or more that is owned byProMed Pomona and used in the conduct of its business is listed in Schedule2.12(b) (the *“Aggregate TangiblePersonal Property”*).

(c)           All items constituting the Aggregate Tangible PersonalProperty will be retained by ProMed Pomona until the Closing and consideredpart of the Transaction subject to the disposition in the ordinary course ofbusiness consistent with past practice (the *“TangiblePersonal Property”*).  None ofthe Tangible Personal Property shall be sold nor encumbered by a Lien except asspecifically contemplated by this Agreement. All of the Tangible Personal Property is in good operating condition,subject to reasonable wear and tear. Except for the representation set forth above, the Tangible PersonalProperty is sold “AS IS-WHERE IS” with no warranty or representation of anykind as to its physical condition.

2.13         Intellectual Property.  Schedule 2.13 lists all intellectualproperty owned by ProMed Pomona.  ProMedPomona owns its trade name, as set forth on Schedule 2.13.  ProMed Pomona does not pay, nor does it knowof any reason it is obligated to pay, any royalties, license fees or otheramounts to any person or entity as a result of the use of the trade names setforth on Schedule 2.13.  ProMedPomona has applied for and received a fictitious name permit from theCalifornia Medical Board to use the trade name of ProMed Pomona and any othertrade name set 

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forth on Schedule 2.13, which permits arecurrently outstanding and active (i.e., not delinquent) and will remainoutstanding and active as of the Closing Date. To the knowledge of ProMed Pomona, its use of such trade names does notinfringe on the rights of any third party.

2.14         Contracts.  Schedule2.14 sets forth a list of all contracts, arrangements, and commitments(whether oral or written) to which ProMed Pomona is a party, or by which it isbound, which are material to the business of ProMed Pomona (the *“Material Contracts”*). Material Contracts shall consist ofany contract, arrangement or commitment (i) with insurance companies, managedcare plans, hospitals, employers or other third parties to which health careservices are provided to patients, or (ii) not entered into in the ordinarycourse of business, or (iii) which involves an expenditure or receipt of fundsgreater than $10,000 per year, or (iv) which is not terminable without penaltyand cause on 30 days or less notice; or (v) with physicians or other providersof medical services on behalf of ProMed Pomona, or (vi) between ProMed Pomonaand any physician or person known to ProMed Pomona to be an affiliate of any physician,regardless of the amount of payments called for, required or made thereunder,or (vii) between ProMed Pomona and any shareholder, executive officer ordirector of ProMed Pomona or an affiliate of such shareholder, executiveofficer or director (including any contracts with Chaparral Medical Group, Inc.dba Chaparral Clinics owned by Jeereddi Prasad, M.D.), or (viii) which is an employment agreement, or (ix)any other contract or agreement whether written or oral to which ProMed Pomonais a party or to which it is bound as to which the breach, nonperformance,cancellation or failure to renew by any party thereto would have a materialadverse effect on the business, assets, condition (financial or otherwise) orresults of operations of ProMed Pomona. Material Contracts shall specifically include the ProMed PomonaManagement Agreement, the ProMed Pomona Provider Contracts, the ProMed PomonaHealth Plan Contracts, and the ProMed Pomona Ancillary Service Contracts.  ProMed Pomona has, prior to the Closing,delivered to Group a correct and complete copy of each Material Contract.  Each of the Material Contracts is a legal,valid, binding, enforceable agreement of ProMed Pomona, in full force andeffect, except as enforceability may be restricted, limited or delayed byapplicable bankruptcy, insolvency, fraudulent conveyance, or other lawsaffecting creditor’s rights generally, and except as enforceability is subjectto general principles of equity.  Exceptas set forth on Schedule 2.14, there is not now and, to the knowledge ofProMed Pomona, there has not been claimed or alleged by any person or entity,that a default exists, or an event that with notice or lapse of time or bothwould constitute a default or event of default, on the part of ProMed Pomona, orto the knowledge of ProMed Pomona, any other party thereto.  Except as set forth on Schedule 2.14,no consent from, or notice to any third person or governmental entity isrequired in order to maintain in full force and effect any of the MaterialContracts, other than consents that have been obtained and are unconditionaland in full force and effect, except as enforceability may be restricted,limited or delayed by applicable bankruptcy, insolvency, fraudulent conveyance,or other laws affecting creditor’s rights generally, and except asenforceability is subject to general principles of equity, or consents thatwill be obtained which will be unconditional and in full force and effect,except as enforceability may be restricted, limited or delayed by applicablebankruptcy, insolvency, fraudulent conveyance, or other laws affecting creditor’srights generally, and except as enforceability is subject to general principlesof equity, and such notices that have been given and copies of such consentshave been delivered to Group.

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All Material Contracts which constitute *“affiliate agreements”* are noted as such on Schedule 2.14.

2.15         Legal Proceedings.  Except as setforth on Schedule 2.15(a) (*“Existing/ThreatenedClaims”*), there is no pending claim, suit, action, investigation,legal or administrative proceeding (*“Proceeding”*),and, to the knowledge of ProMed Pomona, no person, entity or authority(including, but not limited to, any employee, agent, contractor or provider ofProMed Pomona) has threatened to commence any Proceeding or any investigationthat could lead to a Proceeding: (i) against ProMed Pomona (including, withoutlimitation, any workers’ compensation, Equal Employment Opportunity Commissionor Americans With Disability Act claims) or that otherwise relates to or mayaffect the business of ProMed Pomona or any of the other assets owned or usedby ProMed Pomona; or (ii) that challenges, or that may have the effect ofpreventing, delaying, making illegal, or otherwise interfering with, any partof the Transaction.  To the knowledge ofProMed Pomona, no person, entity or authority (including, but not limited to,any employee, agent, contractor or provider of ProMed Pomona) has threatened tocommence any Proceeding or any investigation that could lead to a Proceedingagainst any employee, agent, contractor or provider of any of the ProMedParties for conduct which would give rise to a potential indemnificationobligation of ProMed Pomona.  There is nooutstanding order, judgment, writ, injunction or decree of any court or anyfederal, state, local or other governmental department, commission, board,bureau, agency or instrumentality, to which ProMed Pomona or any of the otherassets owned or used by ProMed Pomona, is subject that has not been fullycomplied with to the satisfaction of such governmental entity.  Except as set forth on Schedule 2.15(b),to the knowledge of ProMed Pomona, the costs of defense, and any amount thatmay be owing upon any judgment or settlement of the Existing/Threatened Claimsare covered by one or more of the insurance policies described in Section2.18, subject only to the customary deductibles set forth in such insurancepolicies.

2.16         Compliance with Laws.  ProMed Pomonais not in violation of any law, rule, regulation or administrative or judicialorder pertaining to the assets or the business of ProMed Pomona (including,without limitation, licensing, health care, federal, state or local lawsrelating to kickbacks, illegal referrals, illegal billings or the like, drugenforcement, securities, zoning, building, environmental, immigration, civilrights and occupational health and safety laws, regulations, ordinances andcodes) which would have a material adverse effect on the assets or the businessof ProMed Pomona or would have the effect of delaying, making illegal orotherwise interfering with, any part of the Transaction.  To the best of its knowledge, ProMed Pomonahas no reason to anticipate that existing circumstances are likely to result inviolations of any of the foregoing.

2.17         Employees.  Set forth on Schedule2.17 are the following:

(a)           A complete and accurate list of the names, titles,dates of hire and rates of pay of all employees of ProMed Pomona as of the datehereof.  Except as set forth separatelyon Schedule 2.17, (i) all employees are “at will” employees, and no written ororal employment, consultant or independent contractor agreement exists withrespect to ProMed Pomona to which ProMed Pomona may be bound, (ii)  no employees are members of a labor union inconnection with their employment with ProMed Pomona or subject to a collectivebargaining agreement with ProMed Pomona, and (iii)  to the knowledge of ProMed Pomona, noemployees are subject 

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to or party to any contract or agreement restrictingtheir ability to freely engage or compete in any business.

(b)           A description of each employee benefit or compensationplan, including without limitation, pension, retirement, deferred compensation,profit sharing, bonus or incentive, medical, dental, health insurance and lifeinsurance or other employee benefit plans, arrangements or undertakings ofProMed Pomona applicable to its employees.

(c)           A complete and accurate list of all holiday andvacation pay accrued as of March 31, 2007 for all employees of ProMed Pomona.

Except as set forth in Schedule 2.17, ProMed Pomona is not aparty to, bound by, nor does it maintain or make any contribution to, nor hasit incurred any expense with respect to any employment agreement, pension,retirement, deferred compensation, profit sharing, bonus or incentive plan,medical, dental or other health insurance plan, life insurance plan, or otheremployee benefit plan, program, arrangement or undertaking, whether or notlegally binding (including, without limitation, any “employee benefit plan” asdefined in Section 3(3) of the federal Employee Retirement Income Security Act(*“ERISA”*)), under which employees ofProMed Pomona are eligible to participate or derive a benefit (collectively *“Employee Plans”* and individually *“EmployeePlan”*).

(d)           As of the Closing, there will be no liability ofProMed Pomona which has not been properly accrued on the ProMed FinancialStatements for any Employee Plan or unpaid compensation, tax withholdings,wrongful termination, Federal Insurance Contribution Act and disabilitypayments of any kind with respect to any employee or independent contractorproviding services to ProMed Pomona, including without limitation, vacationpay, sick leave pay, personal day pay, severance pay and bonus pay.

2.18         Insurance.  Schedule2.18 contains a list of all insurance policies maintained by or for thebenefit of ProMed Pomona through the Closing Date, including errors andomission, stop-loss (reinsurance), directors and officers, general liability,worker’s compensation and malpractice insurance policies (the *“Insurance Policies”*). The Insurance Policies are in full force and effect as of the datehereof in accordance with their respective terms, and such Insurance Policieswill continue in full force and effect through the Closing Date.

2.19         Management; Powers of Attorney.  Schedule2.19 sets forth all current appointed and acting officers and directors ofProMed Pomona (or other applicable managers or governing board members) andlists all general and special powers of attorney granted by ProMed Pomona,including the names of the attorneys-in-fact appointed under those powers ofattorney and the respective dates in which those powers were granted.

2.20         No Bankruptcy Proceedings. Since January 1, 2005, ProMed Pomona has not (i) made a generalassignment for the benefit of creditors, (ii) filed any voluntary petition inbankruptcy or suffered the filing of an involuntary petition by its creditors,(iii) suffered the appointment of a receiver to take possession of all orsubstantially all of its assets, property or business, (iv) suffered theattachment or other judicial seizure of all or substantially all of its 

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assets, property or business, (v) admitted in writingits inability to pay its debts as they come due, or (vi) made an offer ofsettlement, extension or compromise to its creditors generally.

2.21         Licensure.  As of thedate hereof, each of the employees of ProMed Pomona who is required to belicensed in connection with the delivery of health care services is dulylicensed without restriction.

2.22         Environmental.  ProMed Pomonahas complied with all federal, state and local environmental laws, rules andregulations as in effect on the date hereof applicable to its business and itsassets.  To the knowledge of ProMedPomona, no hazardous or toxic waste, substance, material or pollutant (as thoseor similar terms are defined under the Comprehensive Environmental Response, Compensation andLiability Act of 1980, as amended, 42 U.S.C. 9601 et seq., Toxic Substances Control Act, 15 U.S.C.  2601 et seq., the Resource Conservation andRecovery Act of 1976, 42 U.S.C.  6901 etseq.  or any other applicable federal,state and local environmental law, statute, ordinance, order, judgment, rule orregulation relating to the environment or the protection of human health (*“Environmental Laws”*)), including but not limited to, anyasbestos or asbestos related products, oils or petroleum-derived compounds,CFCs or PCBs, have been released, emitted or discharged or are currentlylocated in, on, under, or about the real property on which the assets or thebusiness of ProMed Pomona are located. The assets of ProMed Pomona and its use thereof, and ProMed Pomona’soperation of its business, is not in violation of any Environmental Laws norany occupational, safety and health law now in effect.

2.23         Confidentiality and Non-Compete Arrangements. Except as set forth on Schedule 2.23, ProMed Pomona is not aparty to or is bound or affected by, any confidentiality or non-competeagreements or arrangements, or any acquisition or sale or other agreements thatcontain any confidentiality or non-compete agreements or arrangements, that arecurrently in effect, or are contained in agreements or arrangements that havelapsed but which contain continuing confidentiality or non-compete obligations,agreements or arrangements.

2.24         Inspections.  Schedule2.24 sets forth accurately and fully describes (i) all inspections ofProMed Pomona conducted by any governmental agency or health plan at any timeduring the five (5) year period preceding the date of this Agreement, whichinspection detected matters requiring correction or modification, and wheresuch violation has not been resolved to the satisfaction of such inspectingparty.  ProMed Pomona has delivered acopy of all inspection reports referred to in this Section 2.24 which reflectall matters which were noted by any and all such governmental agencies orhealth plans as requiring correction or modifications which were requested orrecommended.

2.25         Reimbursement Status.  As of thedate hereof:

(a)           To the extent that ProMed Pomona is participating inthe Medicare and Medicaid programs or in other applicable governmental healthcare payment programs, and is authorized to receive reimbursement from suchprograms for fees and charges incurred by eligible patients for services ofsuch programs, ProMed Pomona knows of no reason why the Surviving Corporationwill not be able to continue to participate in such governmental health carepayment programs to the same extent, if any, that ProMed Pomonaparticipates.  ProMed 

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Pomona has not received any notice that any suchlicense, participation or authorization has been or is threatened to beterminated or restricted, and ProMed Pomona does not know of any basis for anysuch termination or restriction.  To theknowledge of ProMed Pomona, there is no federal or state investigation pendingor contemplated, that will have an impact upon the reimbursement status ofProMed Pomona or ProMed Pomona’s ability to operate its business as currentlyconducted.  ProMed Pomona has notreceived any notice of action nor, to the knowledge of ProMed Pomona, is thereany threatened or likely action by the Medicare or Medicaid program or anycarrier, to recoup or challenge any Medicare or Medicaid reimbursement thatProMed Pomona has received or for which ProMed Pomona currently has a claimpending for services rendered in connection with its business.

(b)           All billing practices by ProMed Pomona or ProMed HCAon behalf of ProMed Pomona, to all third parties including, but not limited to,Medicare, Medicaid and private insurance companies, have been true, fair andcorrect and in compliance with all applicable laws, regulations and policies ofall such third party payors, and neither ProMed Pomona nor ProMed HCA on behalfof ProMed Pomona has billed for or received any payment or reimbursement inexcess of amounts permitted by law.

2.26         Absence of Certain Business Practices. Neither ProMed Pomona nor, to the knowledge of ProMed Pomona,  ProMed HCA on behalf of ProMed Pomona, or anyof their respective agents, directly or indirectly (i) offered to pay orsolicited any remuneration, in cash or in kind, to, or made any financialarrangements with, any past or present customers, past or present suppliers, contractors,third parties, or third party payors of ProMed Pomona in order to obtainbusiness or payments from such persons, other than entertainment activities inthe ordinary and lawful course of business; (ii) given or received, or agreedto give or receive, or is aware that there has been made or that there is anyagreement to make or receive, any gift or gratuitous payment of any kind,nature or description (whether in money, property or services) to any customeror potential customer, supplier or potential supplier, contractor, third partypayor or any other person other than in connection with promotional orentertainment activities in the ordinary and lawful course of business; (iii)made or agreed to make, or is aware that there has been made or that there isany agreement to make any contribution, payment or gift of funds or propertyto, or for the private use of, any governmental official, employee or agentwhere either the contribution, payment or gift or the purpose of suchcontribution, payment or gift is or was illegal under the laws of the UnitedStates or under the laws of any state thereof or any other jurisdiction underwhich such payment, contribution or gift was made; (iv) established ormaintained any unrecorded fund or asset for any purpose or made any false orartificial entries on any of its books or records for any reason; or (v) madeor agreed to make or is aware that there has been made or that there is anyintention to make, any payment to any person with the intention or understandingthat any part of such payment would be used for any purpose other than thatdescribed in the documents supporting such payment.

2.27         Permits.  Schedule2.27 sets forth a list of all permits, licenses and approvals from federal,state, local and foreign governmental and regulatory bodies (collectively *“Permits”*) held by ProMed Pomona and relating to the assetswhich are a part of the Transaction. Such Permits constitute all of the Permits necessary to conduct thebusiness of ProMed Pomona, as applicable, in the manner now conducted by ProMedPomona.  No breach of any such Permitcurrently exists, nor has any event occurred which through the passage of timeor the giving of notice or 

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both, would constitute a breach thereunder.  To the knowledge of ProMed Pomona, none ofthe Permits is to be or proposed to be suspended, canceled or revoked oramended, modified or limited in any fashion.

2.28         Fraud and Abuse.  Except as setforth in Schedule 2.28, neither ProMed Pomona, nor any individual orentity having an ownership interest in, or who is an officer, director orlicensed healthcare employee of ProMed Pomona has been convicted of, orinvestigated for, a Medicare or Medicaid health program related offense.  To the knowledge of  ProMed Pomona, no individual or entity havingan ownership interest in, or who is an officer, director or licensed healthcareemployee of ProMed Pomona has been convicted or charged with any federal orstate health program related offense or convicted of, charged with orinvestigated for a violation of federal or state law related to fraud, theft,embezzlement, breach of fiduciary responsibility, financial misconduct,obstruction of an investigation or controlled substances, or has been excludedor suspended from participation in a state health program or has been subjectto any order or consent decree of, or criminal or civil fine or penalty imposedby, any court or governmental agency. Except as set forth in Schedule 2.28, no claim, complaint, suit,action, or proceeding (collectively *“Proceeding”*)is pending nor, to the knowledge of ProMed Pomona, is any Proceeding threatenedor any investigation that could lead to a Proceeding occurring against ProMedPomona, or any individual or entity having an ownership interest in, or who wasan officer or director of, ProMed Pomona, which may result in any restraint,prohibition or the obtaining of damages or any other relief.  ProMed Pomona has implemented a formalcompliance program designed to assure compliance with applicable fraud and abuselaws.

2.29         Recoupment.  There is noaction or threatened action for recoupment against ProMed Pomona, nor is thereany request for payments by ProMed Pomona to Medicare or of reimbursement fromProMed Pomona by Medicare, nor by any other agency affiliated with Medicare,nor by or from any third-party reimburser, including, without limitation, anyinsurance carrier, pre-paid plan, or any other similar entity, nor does ProMedPomona have knowedge of any basis for such recoupment by any party.  None of the accounts of ProMed Pomona hasbeen acquired by unlawful special arrangements or kickbacks, or other unlawfulacts.

2.30         Enrollment Information and Eligibility Reports. The enrollment information of ProMed Pomona set forth in the MarchInterim Financial Statements were prepared from the eligibility reports of thehealth plans who are a party to the ProMed Pomona Health Care Contracts.  The enrollment information set forth in theMarch Interim Financial Statements accurately and completely describes theinformation provided in the eligibility reports of the health plans as to theenrollment numbers of ProMed Pomona, and are true, accurate and complete in allmaterial respects.

2.31         Disclosure.  Norepresentation or warranty by ProMed Pomona contained in this Agreement or inrespect of the exhibits, schedules, lists or other documents delivered to Groupand/or Group Subsidiary by ProMed Pomona or any Principal ProMed Shareholderand referred to herein or therein, and no statement contained in anycertificate furnished or to be furnished by or on behalf of ProMed Pomonapursuant hereto or thereto, or in connection with the Transaction, contains, orwill contain as of the date such representation or warranty is made or suchcertificate is or will be furnished, any untrue statement of a material fact,or omits, or will omit to state as of the date such representation or warrantyis made or such certificate is or will 

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be furnished, any material fact which is known to theparty making the representation or warranty to be necessary to make thestatements contained herein or therein, in light of the circumstances underwhich they were made, not misleading.

2.32         Bank Accounts.  A correct andcomplete list of all bank accounts of ProMed Pomona (*“ProMed BankAccounts”*) and the persons authorized to access such accounts and toincur indebtedness on behalf of ProMed Pomona, is set forth in Schedule 2.32of this Agreement.  Except as set forthon Schedule 2.32, all monies in the ProMed Bank Accounts are in cash(and not securities of any nature) and constitute “good funds” subject toimmediate withdrawal by Group.

2.33         Brokers’ and Finders’ Fees. Neither ProMed Pomona nor any Principal ProMed Shareholder has incurredany liability to any broker, finder or agent for any brokerage fees, finder’sfees or commissions with respect to the transactions contemplated by thisAgreement, and if ProMed Pomona or any Principal ProMed Shareholder hasincurred any such liability, such liability shall be and remain the soleresponsibility of ProMed Pomona and the Principal ProMed Shareholders, and thePrincipal ProMed Shareholders shall indemnify, defend and hold Group harmlessfrom and against any and all liabilities, losses, damages, claims, causes ofaction, costs and expenses (including without limitation, reasonable attorneys’fees), arising out of or relating to such liability.

2.34         Information Statement.  Theinformation included in the information statement to be supplied by ProMedPomona in connection with the meeting of, or solicitation of written consentsfrom, ProMed Pomona’s shareholders to consider the approval and adoption ofthis **Agreement** and the approval of the Merger (the *“Information Statement”*) shall not, at the time of themailing of such Information Statement, and at the time of the meeting or voteof the shareholders of ProMed Pomona, contain any untrue statement of amaterial fact or omit to state any material fact required to be stated in theInformation Statement or necessary to make the statements in the Information Statement,in light of the circumstances in which they are made, not false ormisleading.  The Information Statementsupplied to the shareholders will comply as to form in all material respectswith the provisions of the California Code and the rules and regulationsthereunder.

2.35         Board Approval.   The Board ofDirectors of ProMed Pomona has determined (i) that the Merger is fair to, andin the best interests, of ProMed Pomona and its shareholders and (ii) torecommend that its shareholder approve and adopt this Agreement and approve theMerger.

2.36         Primary Care Physicians at Chaparral Clinics. ProMed Pomona represents that the primary care physicians at the Chaparral Clinics are exclusive to ProMed Pomona and ProMed Upland.

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**ARTICLE 3.**

**REPRESENTATIONS AND WARRANTIES OFGROUP, GROUP SUBSIDIARY AND HOLDINGS**

 

In order to induce ProMed Pomona and the Principal ProMed Shareholdersto enter into this Agreement and to consummate the Transaction, Group, GroupSubsidiary and Holdings, make the representations and warranties set forth inthis Article 3.

3.1           Organization.  Group andGroup Subsidiary are professional corporations duly organized, validly existingand in good standing under the laws of the State of California.  Holdings is a corporation duly organized,validly existing and in good standing under the laws of the State ofDelaware.  Each of Group, GroupSubsidiary and Holdings has allrequisite authority to own, lease, and operate its assets and to carry on itsbusiness as currently being conducted.

3.2           Authorization.  Each ofGroup, Group Subsidiary and Holdings has the power and authority to enter intothis Agreement and to consummate the Transaction.  All actions on the part of Group, GroupSubsidiary and Holdings necessary for the authorization, execution, deliveryand performance of this Agreement and the consummation of the Transaction havebeen or will be taken prior to the Closing Date, and this Agreement (includingexhibits, schedules and the ancillary agreements) constitutes the legal, validand binding obligation of Group, Group Subsidiary and Holdings, as applicable,enforceable against them in accordance with its terms, except as enforceabilitymay be restricted, limited or delayed by applicable bankruptcy, insolvency,fraudulent conveyance, or other laws affecting creditor’s rights generally, andexcept as enforceability is subject to general principles of equity.

3.3           No Consent Required.  Except as setforth in Schedule 3.3, neither the execution and delivery of thisAgreement by Group, Group Subsidiary or Holdings nor the performance by them oftheir obligations under this Agreement requires the consent, approval, order orauthorization of, or registration, declaration or filing with any governmentalentity or any third party that will not have been obtained and delivered toProMed Pomona prior to the Closing Date except for the filing of the Agreementof Merger with the Secretary of State of the State of California.

3.4           No Violation of Other Agreements; No Conflicts.

(a)           Neither the execution and delivery of this Agreementnor the consummation or performance of the Transaction violates, conflicts withor results in a breach of, or shall violate, conflict with or result in abreach of any lease, contract, document or agreement to which Group, GroupSubsidiary and/or Holdings is a party or by which Group, Group Subsidiaryand/or Holdings may be bound.

(b)           Neither the execution and delivery of this Agreementnor the consummation or performance of the Transaction will, directly orindirectly (with or without the giving of notice, or lapse of time, or both):

(i)            contravene, conflict with, or result in a violation ofany provision of the organizational documents of Group, Group Subsidiary and/orHoldings;

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(ii)           contravene, conflict with, or result in a violationof, any legal requirement or any order, judgment or decree to which Group,Group Subsidiary and/or Holdings may be subject; or

(iii)          contravene, conflict with, or result in a violation ofany of the terms or requirements of, or give any governmental body the right torevoke, withdraw, suspend, cancel, terminate, or modify, any governmentalauthorization that is held by Group, Group Subsidiary and/or Holdings.

Except as specifically contemplated by this Agreement and as requiredunder the Securities Act and any applicable state securities laws, Holdings isnot required to obtain any consent, authorization or order of, or make anyfiling or registration with, any court or governmental agency in order for itto execute, deliver or perform any of its obligations under or contemplated bythis Agreement in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filingsand registrations which Holdings is required to obtain pursuant to thepreceding sentence have been obtained or will be obtained prior to Closing.

3.5           Capital Structure.  Theauthorized capital stock of Holdings consists of 40,000,000 shares of CommonStock and 5,000,000 shares of preferred stock, par value $0.01 (*“Preferred Stock”*) of which 7,939,990 shares of Common Stockand zero shares of Preferred Stock were issued and outstanding as of May 10,2007 as reflected in Holdings’ most recent quarterly report filed May 15, 2007with the Securities and Exchange Commission (*“SEC”*).  All of the outstanding shares have beenvalidly issued and are fully paid and non-assessable.  Except as disclosed in the SEC Documents (asdefined in Section 3.7), no shares of Common Stock are subject tooutstanding options, warrants, rights, shareholder agreements or otherinstruments or agreements outstanding giving any person the right to acquireany shares of capital stock of Holdings, nor are there any commitments to issueor execute any such options, warrants, rights, shareholder agreements or otherinstruments or agreements.  There are nooutstanding stock appreciation rights or similar rights outstanding withrespect to any of the capital stock of Holdings nor are there any instruments,or agreements giving anyone the right to acquire any such rights.

3.6           Issuance of Securities.  The CommonStock is duly authorized and, upon issuance in accordance with the termshereof, shall be duly issued, fully paid and non-assessable, and free from allLiens.

3.7           SEC Documents; Holdings Consolidated FinancialStatements.  Since May 27, 2004 when Holdings became a SECreporting company, Holdings has filed all reports, schedules, forms, statementsand other documents required to be filed by it with the SEC under theSecurities Exchange Act of 1934, as amended (the *“ExchangeAct”*) (all of the foregoing filed prior to the date hereof oramended after the date hereof and all exhibits included therein and financialstatements and schedules thereto and documents incorporated by referencetherein, being hereinafter referred to as the *“SECDocuments”*).  Holdings hasdelivered to the ProMed Parties or their representatives, or made availablethrough the SEC’s website at http://www.sec.gov,  true and complete copies of the SECDocuments.  As of their respective dates,the financial statements of Holdings disclosed in the SEC Documents (the *“Holdings Consolidated Financial Statements”*) complied as toform in all material respects with applicable 

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accounting requirements and the published rules andregulations of the SEC with respect thereto. Such Holdings Consolidated Financial Statements have been prepared inaccordance with GAAP, applied on a consistent basis throughout the periodscovered thereby (except (i) as may be otherwise indicated in such HoldingsConsolidated Financial Statements or the notes thereto, or (ii) in the case ofunaudited interim statements, to the extent they may exclude footnotes or maybe condensed or summary statements and as unaudited statements, are subject tonormal recurring audit adjustments consistent with past practice) and, fairlypresent in all material respects the financial position of Holdings as of thedates thereof and the results of its operations.  The Holdings Consolidated FinancialStatements do not contain any untrue statement of a material fact or omit tostate any material fact necessary in order to make the statements therein, inlight of the circumstances under which they were made, not misleading.

3.8           Legal Proceedings.  There is nopending Proceeding, and, to the knowledge of Group, Group Subsidiary and/orHoldings, no person has threatened to commence any Proceeding that challenges,or that may have the effect of preventing, delaying, making illegal, orotherwise interfering with, any part of the Transaction.

3.9           Compliance with Laws.  None ofGroup, Group Subsidiary nor Holdings is in violation of any rule, regulation oradministrative or judicial order pertaining to the assets or the business ofGroup, Group Subsidiary and/or Holdings (including, without limitation,licensing, health care, federal, state or local laws relating to kickbacks,illegal referrals, illegal billings or the like, drug enforcement, securities,zoning, building, environmental, immigration, civil rights and occupationalhealth and safety laws, regulations, ordinances and codes) which would have theeffect of preventing, delaying, making illegal or otherwise interfering with,any part of the Transaction.    To theirknowledge, none of Group, Group Subsidiary nor Holdings has any reason toanticipate that existing circumstances are likely to result in violations ofany of the foregoing.

3.10         Disclosure.  Norepresentation or warranty by Group, Group Subsidiary and/or Holdings containedin this Agreement or in respect of the exhibits, schedules, lists or otherdocuments delivered to the ProMed Parties by Group, Group Subsidiary and/orHoldings and referred to herein or therein, and no statement contained in anycertificate furnished or to be furnished by or on behalf of Group, GroupSubsidiary  and/or Holdings pursuanthereto or thereto, or in connection with the transactions contemplated hereby,contains, or will contain as of the date such representation or warranty ismade or such certificate is or will be furnished, any untrue statement of amaterial fact, or omits, or will omit to state as of the date suchrepresentation or warranty is made or such certificate is or will be furnished,any material fact which is known to the party making the representation orwarranty to be necessary to make the statements contained herein or therein, inlight of the circumstances under which they were made, not misleading.

3.11         Brokers’ and Finders’ Fees. None of Group, Group Subsidiary or Holdings has incurred any liabilityto any broker, finder or agent for any brokerage fees, finder’s fees orcommissions with respect to the transactions contemplated by this Agreement,and if Group, Group Subsidiary or Holdings has incurred any such liability,such liability shall be and remain the sole responsibility of Group, GroupSubsidiary and Holdings, and Group, Group Subsidiary and Holdings shallindemnify, defend and hold the ProMed Parties harmless from and against 

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any and all liabilities, losses, damages, claims,causes of action, costs and expenses (including without limitation, reasonableattorneys’ fees), arising out of or relating to such liability.

3.12         Financing.  Holdings andGroup shall use their best efforts to take, or cause to be taken, all actionsand to do, or cause to be done, all things necessary, proper or advisable to arrangefinancing acceptable to Holdings and Group to fund the Cash Consideration.

**ARTICLE 4.**

**COVENANTS OF PROMED POMONA ANDPRINCIPAL PROMED SHAREHOLDERS**

 

In order to induce Group, Group Subsidiary and Holdings to enter intothis Agreement and to consummate the Transaction, ProMed Pomona and thePrincipal ProMed Shareholders, enter into the agreements set forth in thisArticle 4.

4.1           Conduct of Business - Negative Covenants. From the date hereof until the Effective Time, ProMed Pomona shall not,without the prior written consent of Group and Group Subsidiary, which consentshall not be unreasonably withheld, conduct the business of ProMed Pomona otherthan in the ordinary course of ProMed Pomona’s business as conducted throughthe date hereof or commit or suffer any material act or omission which deviatesfrom the ordinary course of ProMed Pomona’s business as conducted through thedate hereof.  Without limiting thegenerality of the foregoing, from the date of execution of this Agreement untilthe Effective Time, ProMed Pomona shall not, without the prior written consentof Group and Group Subsidiary, which consent shall not be unreasonablywithheld:

(a)           institute any new method of purchase, sale, lease,management, accounting or operation or engage in any transaction or activity,enter into any agreement or make any commitment or amend any existing materialagreement other than as contemplated by this Agreement, except in the ordinarycourse of its business and consistent with past practice;

(b)           change or amend its Articles of Incorporation orBy-Laws or propose any such change or amendment;

(c)           offer, issue, authorize or sell any shares of thecapital stock or other securities (such term as used in this subsection shallinclude, without limitation, debt securities) of ProMed Pomona of any kindwhatsoever, or acquire directly or indirectly, by redemption or otherwise, anysuch capital stock, reclassify or split-up any such capital stock, declare orpay any dividends thereon in cash, securities or other property, or make anyother distribution with respect thereto, or grant or enter into any stockoptions, warrants, or other rights to acquire securities of ProMed Pomona orenter into any other contracts or commitments of any kind with respect to theissuance of additional shares of capital stock or other securities of ProMedPomona;

(d)           (i) borrow or agree to borrow any funds, whetherdirectly or by way of guaranty or otherwise, or (ii) except in the ordinarycourse of business and consistent with past practice, incur, or assume orbecome subject to any obligation or liability (absolute or contingent);

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(e)           pay, discharge, waive, satisfy, compromise or adjustany claim, liability or obligation (absolute, accrued, contingent or otherwise)of an amount in excess of $10,000, other than as contemplated by this Agreementor occurring in the ordinary course of business and consistent with pastpractice;

(f)            prepay any obligation having a fixed maturity of morethan 90 days from the date such obligation was incurred other than ascontemplated by this Agreement or occurring in the ordinary course of businessand consistent with past practice;

(g)           permit or allow any of its property or assets (real,personal or mixed, tangible or intangible) to be subjected to any mortgage, pledge,lien or other encumbrance except in the ordinary course of business andconsistent with past practice;

(h)           cancel any debts or waive any claims or rights ofsubstantial value or sell, transfer, or otherwise dispose of any of itsproperties or assets, except in the ordinary course of its business andconsistent with past practice;

(i)            dispose of any rights to the use of any patent,trademark, service mark, trade name or copyright, or dispose of or disclose toany person any trade secret, formula, process or know-how not theretofore amatter of public knowledge, except in the ordinary course of business andconsistent with past practice;

(j)            grant any general increase in the compensation ofofficers or employees (including any such increase pursuant to any bonus,pension, profit sharing or other plan or commitment) or any increase in thecompensation (including salary and bonus) payable or to become payable to anyofficer except in the ordinary course of business and consistent with pastpractice;

(k)           appoint or remove from office any officers of ProMedPomona other than as contemplated by this Agreement;

(l)            make any payment to or sell, transfer or lease anyproperties or assets to, or enter into any agreement or arrangement with, anyof the officers or directors of ProMed Pomona or any other affiliate thereof,except in the ordinary course of business and consistent with past practice;

(m)          enter into any contract, commitment or transaction notin the usual and ordinary course of its business, other than transactionscontemplated by, or referred to in, this Agreement;

(n)           change, or initiate a change of, any of the banking,safe deposit or power of attorney arrangements effective as of the date hereof,except for changes in the signatories on the accounts of ProMed Pomona,provided such changes are contemplated by this Agreement and ProMed Pomonashall have given Group and Group Subsidiary prior written notice of any suchchange in signatories and Group and Group Subsidiary approves same;

(o)           write down the value of any inventory (includingwrite-downs by reason of shrinkage or mark-down) or write off as uncollectibleany notes or accounts receivable, except 

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for immaterial write-downs of inventory or accountsreceivable in the ordinary course of business and consistent with pastpractice;

(p)           merge, consolidate, reorganize or liquidate ProMedPomona;

(q)           file a voluntary petition on behalf of ProMed Pomonaunder the U.S. Bankruptcy Code or any other bankruptcy or insolvency law or anyother law for relief of debtors;

(r)            change, amend or terminate a Material Contractconstituting an affiliate agreement under Section 2.14 except as contemplatedby this Agreement or with the written consent of Group and Group Subsidiary; or

(s)           agree or commit, whether in writing or otherwise, todo any of the foregoing.

Notwithstanding the foregoing, ProMed Pomona may at any time prior tothe Closing Date, (i) pay the Stay Bonuses described in Section 5.3 and (ii)distribute cash to any or all of the ProMed Pomona Shareholders provided suchdistribution shall not cause ProMed Pomona to violate the covenant set forth inSection 4.4 or any other representation, warranty, covenant or agreementprovided herein.

4.2           Conduct of Business - Affirmative Covenants. Prior to the Effective Time, ProMed Pomona will conduct its business inthe ordinary course and will:

(a)           maintain its good standing and qualification to dobusiness in all jurisdictions where it is required to be qualified to dobusiness, and all licenses, permits, franchises, rights and privileges whichare necessary for the conduct of its business;

(b)           continue at its expense to maintain all of itsproperty and equipment in customary repair, order and working condition,reasonable wear and use excepted;

(c)           duly comply with all laws, regulatory requirements andagreements to which it, or any of its properties or assets, is subject or bywhich it is bound;

(d)           maintain in force and effect the current insuranceupon its properties and with respect to the conduct of its business;

(e)           use best efforts to keep intact its present businessorganization and keep available the services of its present officers, employeesand agents; and

(f)            maintain accurately its books, records and accounts.

4.3           Interim Financial Statements Prior to Closing. ProMed Pomona shall provide Group with the interim balance sheets andincome statements of ProMed Pomona for each of the monthly periods commencingon March 1, 2007 through the month preceding the Closing Date promptly uponcompletion but in no event later than five days before the Closing Date (the *“Subsequent Monthly Interim Financial Statements”*).The Subsequent Monthly Financial 

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Statements shall fairly present in all materialrespects the financial condition and results of operation of ProMed Pomona asof the date and for the periods set forth therein and shall be prepared inaccordance with GAAP, applied on a consistent basis throughout the periodscovered thereby, except that such Subsequent Monthly Interim FinancialStatements may exclude footnotes, and, as unaudited statements, are subject tonormal recurring audit adjustments consistent with past practice.  On the Closing Date, there shall not havebeen any material adverse change to the financial condition of ProMed Pomona asshown on the Subsequent Monthly Financial Statements, including no materialadverse change in the assets and liabilities of ProMed Pomona as shown on theMarch Interim Financial Statements; provided, however that Group acknowledgesthat ProMed Pomona may make the payment of the Stay Bonuses and thedistribution to the ProMed Pomona Shareholders described in the last paragraphof Section 4.1 subject to satisfaction of the cash Closing requirements setforth in Section 4.4.

4.4           Required Cash and Accounts Receivable at Closing. ProMed Pomona shall have at Closing cash and accounts receivable in anamount not less than the total liabilities or obligations of ProMed Pomona(whether absolute, accrued, contingent, or otherwise) incurred or accrued as ofthe Closing Date.  The cash of ProMedPomona shall include cash sufficient to cover the sum of Two Million EightHundred Seventy-Seven Thousand Seven Hundred Twenty-Eight Dollars ($2,877,728)in Physician Retention Bonuses which shall be deemed a liability of ProMedPomona.  The accounts receivable includedin the Subsequent Interim Financial Statement and the Closing Date BalanceSheet, are or will be, as the case may be, valid and existing and representmonies due for services performed in the ordinary course of business.

4.5           No Shop.  Between thedate of this Agreement and the Closing Date neither ProMed Pomona, nor any ofits affiliates, agents or representatives, shall directly or indirectlysolicit, initiate, encourage, entertain or support any inquiry, proposal, orother offer from any other party relating to any transaction involving,directly or indirectly, the merger of ProMed Pomona or the purchase of theassets or stock of ProMed Pomona or any possible transaction or series oftransactions as an alternative to the transactions contemplated hereby (*“Competing Proposal”*). To the extent ProMed Pomona or any Principal ProMed Shareholder or anyof ProMed Pomona’s other shareholders, affiliates, agents or representativesreceives any Competing Proposal, they shall promptly inform Group of suchCompeting Proposal and shall advise the potential purchaser that ProMed Pomonais subject to this Agreement and therefore will not hold any discussions withsuch potential purchaser.

ProMed Pomona and the Principal ProMed Shareholders recognize that (i)the covenants and the restrictions contained in this Section 4.5 are necessary,fundamental, and required for the protection of the transactions contemplatedby this Agreement; (ii) such covenants relate to matters which are of a special,unique, and extraordinary character that gives such covenants a special, uniqueand extraordinary value; and (iii) a breach of the covenants contained in thisSection 4.5 will result in irreparable harm and damage to Group which cannot beadequately compensated by a monetary award. In the event of such breach, andwithout limiting the right of Group to seek any other remedy or relief to whichit may be entitled at law or in equity, each of ProMed Pomona and the PrincipalProMed Shareholders consent, without challenge or contest, to the immediateremedy of a temporary restraining order, preliminary injunction, or such otherform of injunctive or equitable relief in favor of Group as may be used by anycourt of competent jurisdiction to restrain or enjoin ProMed Pomona or any ofthe Principal ProMed Shareholders 

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from breaching such covenant or to specificallyenforce the provisions of this Section 4.5. ProMed Pomona and the Principal ProMed Shareholders hereby waive anyrequirements that Group secure or post a bond in connection with obtaininginjunctive relief or any other equitable relief.

4.6           Records of ProMed Pomona. ProMed Pomona agrees to deliver or cause to be delivered to Group thefollowing as soon as possible after the execution of this Agreement but in noevent later than ten (10) days after execution of this Agreement: (A) theeligibility tapes for each ProMed Pomona Health Care Contract, (B) thephysician credentialing records of all the physicians who are a party to theProMed Pomona Provider Contracts, (C) all patient records, including casemanagement reports and notes, claims paid history (at least 24 months), and (D)any and all data relating to ProMed HCA’s management of ProMed Pomona.  Group shall maintain the confidentiality ofthe records delivered pursuant to this Section 4.6 to the same extent as it isrequired to apply to the Due Diligence Materials described in Section 5.6.

4.7           Enrollment Information and Eligibility Reports. ProMed Pomona agrees to deliver to Group as soon as they have beenprepared, all eligibility reports prepared after the date of execution of thisAgreement through and including the Closing Date, and shall certify upondelivery that such reports are true, accurate and complete in all materialrespects, or shall describe any limitations to such certification.

4.8           No Change to Contracts with Chaparral Clinics; NoAdverse Change by Chaparral Clinics to PCP and Specialist Agreements. ProMed Pomona represents and agrees that it has not, nor has ProMed HCAon its behalf, amended or otherwise changed any term or condition (includingcapitation and fee for service rates) in any contracts between it and theChaparral Clinics, including agreements for the provision of primary care orspecialist physician services at the Chaparral Clinics, since January 1, 2007,and shall not so amend or change any term or condition through the ClosingDate.  As an affiliate of the ChaparralClinics, ProMed Pomona and Jeereddi Prasad, M.D. shall cause the ChaparralClinics not to amend or change any of the Chaparral Clinic’s agreements withits primary care and specialist physicians where such amendment or change wouldadversely affect ProMed Pomona or the Surviving Corporation (including rateincreases affecting ProMed Pomona or the Surviving Corporation) for a period of24 months after the Closing Date, excepting only, in the case of specialistphysicians, such annual increases to the specialist physicians that areapproved by Group from time to time, in an amount not to exceed any rate increasereceived under the commercial HMO contracts.

4.9           ProMed LP.  ProMed Pomonais the owner of a 38% limited partnership interest in ProMed LP which owns theOntario Building.  ProMed Pomona agreesthat it shall sell all of its limited partnership interest in ProMed LP, andshall resign from any management or other positions with ProMed LP, prior tothe Closing Date.  On the Closing Date,(a) all indebtedness and other amounts (i) owed by ProMed Pomona to ProMed LPor (ii) owed by ProMed LP to ProMed Pomona shall be paid, cancelled, oreliminated (whether or not then due) and (b) any Liens relating to any of theaforesaid indebtedness or amounts shall be cancelled and shall be discharged ofrecord.   On the Closing Date, ProMedPomona shall not have any obligation, contractual or otherwise, to ProMed LP.

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4.10         Closing Date Balance Sheet. Promptly upon completion, but no later than twenty five (25) daysfollowing the Closing Date, the Principal ProMed Shareholders and the ProMedExecutive Officers shall deliver to Group and the Surviving Corporation theunaudited balance sheet of ProMed Pomona for the period ending on the ClosingDate prepared in accordance with GAAP (the “*Closing Date Balance Sheet*”).   As required by Section 4.4, ProMed Pomonashall be obligated to have cash and/or accounts receivable in an amount tocover all of its liabilities or obligations as of the Closing Date, includingthe Physician Retention Bonus.  ProMedPomona hereby covenants that all liabilities and obligations (whether absolute,accrued, contingent, or otherwise) incurred or accrued as of the Closing Dateshall be set forth on the Closing Date Balance Sheet.

**ARTICLE 5.**

**ADDITIONAL AGREEMENTS OF THEPARTIES**

 

In order to induce Group, Group Subsidiary and Holdings to enter intothis Agreement and to consummate the Transaction, ProMed Pomona and thePrincipal ProMed Shareholders, on the one hand, and Group, Group Subsidiary andHoldings, on the other hand, enter into the agreements set forth in thisArticle 5.

5.1           Non-Competition of ProMed Executive Officers. As material inducement for the Transaction, each of the ProMed ExecutiveOfficers are simultaneously herewith executing a non-competitionagreement.  Jeereddi Prasad, M.D. shallexecute that non-competition agreement attached as Exhibit E (the *“Prasad Non-Compete Agreement”*), Kishan Thapar shall executethat non-competition agreement attached as Exhibit F (the *“ThaparNon-Compete Agreement”*), and Bahram Bahremand shall execute that non-competition agreement attachedas Exhibit G (the “*Bahremand Non-CompeteAgreement*”, and together with the Prasad Non-Compete Agreement andThapar Non-Compete Agreement are collectively, the *“ExecutiveOfficer Non-Compete Agreements”*). The parties acknowledge that a portion of the Merger Consideration isbeing allocated to the Executive Officer Non-Compete Agreements and thenon-competition covenant of the Principal ProMed Shareholders in Section 5.2 (*“Covenant Allocation”*). The Covenant Allocation shall not bedeemed an estimate or measurement of damages incurred or suffered by Holdings,Group or the Surviving Corporation in the event of a breach of the ExecutiveOfficer Non-Compete Agreements or the non-competition provisions in Section 5.2below.

5.2           Non-Competition of PrincipalProMed Shareholders.

(a)           As a material inducement forthe Transaction, except as permitted in Section 5.2 (b), during the periodcommencing at the Effective Time and ending on the date that is two (2) yearsthereafter, each Principal ProMed Shareholder (other than any of the PrincipalProMed Shareholders who are ProMed Executive Officers and are a party to andbound by the Executive Officer Non-Competition Agreements) agrees that he, sheor it shall not, individually or in any combination, directly or indirectly, asan owner, shareholder, director, officer, trustee, partner, associate,consultant, principal, agent, contractor, employee or otherwise: (i) engage,participate in, form, contract, aid, or hold any interest in *(x)* an independent physician association 

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(IPA) or managed careorganization (including but not limited to an HMO, PPO, or self-insuredemployer plan), or otherwise engage in any business of contracting, directly orindirectly, with an IPA or managed care organization (including but not limitedto an HMO, PPO, or self-insured employer plan) for the provision of serviceswithin the Territory, other than personally-provided patient care services, or *(y)* an entity that manages any IPA, which is, or as of theEffective Time, would become, competitive with any aspect of ProMed Pomona,Group, Holdings or any Affiliate of Holdings within the Territory (the “*Non-Competition Restricted Activities*”) and (ii) *(y)* solicit, or attempt to solicit, any customers, business,clients or employees of ProMed Pomona, Group, Holdings or any Affiliate ofHoldings (including, but without limitation, third party payors) to reduce ordiscontinue their business or employment relationship with ProMed Pomona,Group, Holdings, or any Affiliate of Holdings or *(x)*disrupt, damage, impair or interfere with the business of ProMed Pomona, Group,Holdings, or any Affiliate of Holdings (the “*MSO/IPANon-Solicitation Restricted Activities*” which together with the “Non-CompetitionRestricted Activities” are collectively, the *“RestrictedActivities”*).

For purposes of this Section5.2, Territory means the California counties of Los Angeles, San Bernardino andOrange.

(b)           The Restricted Activitiesshall not prohibit any Principal ProMed Shareholder (i) from owning up to fivepercent (5%) of any class of securities of any publicly traded company, (ii)from contracting with IPAs or managed care entities for the provision ofpersonally-provided patient care services nor restrict such Principal ProMedShareholder from practicing medicine generally, and (iii) from continuing toengage in a Non-Competition Restricted Activity in which such Principal ProMedShareholder was engaged in as of the Effective Date, which activities have beendisclosed to Group prior to the Effective Time.

(c)            For purposes of this Agreement, “Affiliates” ofHoldings shall mean, Prospect Medical Systems, Inc., a Delaware corporation,Prospect Medical Group, a California professional corporation, Pinnacle HealthResources, a California corporation, Sierra Medical Management, Inc., aDelaware corporation, Sierra Primary Care Medical Group, a Medical corporation,a California professional corporation, Nuestra Familia Medical Group, Inc., aCalifornia professional corporation, Santa Ana/Tustin Physicians Group, Inc., aCalifornia professional corporation, Pegasus Medical Group, Inc., a Californiaprofessional corporation, Antelope Valley Medical Associates, Inc., aCalifornia professional corporation, Prospect Health Source Medical Group,Inc., a California professional corporation, Prospect Professional Care MedicalGroup, Inc., a California professional corporation, Prospect NWOC MedicalGroup, Inc., a California professional corporation, APAC Medical Group, Inc., aCalifornia professional corporation, StarCare Medical Group, Inc., a Californiaprofessional corporation, Prospect Hospital Advisory Services, Inc., a Delawarecorporation, Genesis Healthcare of Southern California, Inc., a Medical Group,a California professional corporation, Prospect Physician Associates, Inc., aCalifornia professional corporation, Prospect Advantage Network, Inc., aCalifornia corporation, ProMed Upland, ProMed Company, ProMed HCA and ProMedPomona.

(d)           Each Principal ProMed Shareholder recognizes that thecovenants in this Section 5.2, and the territorial, time and otherlimitations with respect thereto, are reasonable and properly required for theadequate protection of the acquisition of the ProMed Pomona shares held by suchPrincipal ProMed Shareholder in exchange for the Merger Consideration, and 

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agrees that such limitations are reasonable withrespect to its activities, business and public purpose.  Each Principal ProMed Shareholder agrees andacknowledges that the violation of the covenants or agreements in this Section 5.2would cause irreparable injury to ProMed Pomona, Group and Holdings and thatthe remedy at law for any violation or threatened violation thereof would beinadequate and that, in addition to whatever other remedies may be available atlaw or in equity, ProMed Pomona, Group and Holdings shall be entitled totemporary and permanent injunctive or other equitable relief without thenecessity of proving actual damages or posting bond.  The parties hereto also waive any requirementof proving actual damages in connection with the obtaining of any suchinjunctive or other equitable relief.

(e)           It is the intention of each party hereto that theprovisions of this Section 5.2 shall be enforced to the fullest extentpermissible under the laws and the public policies of the state of California,but that the unenforceability (or the modification to conform with such laws orpublic policies) of any provisions hereof shall not render unenforceable orimpair the remainder of this Agreement. Accordingly, if any term or provision of this Section 5.2 shall bedetermined to be illegal, invalid or unenforceable, either in whole or in part,this Agreement shall be deemed amended to delete or modify, as necessary, theoffending provisions and to alter the balance of this Agreement in order torender the same valid and enforceable to the fullest extent permissible asaforesaid.

(f)            In addition to the Restricted Activities described inSection 5.2(a) hereof, each Principal ProMed Shareholder (a) who is a party toa Primary Care Provider Agreement with ProMed Pomona and/or ProMed Uplandagrees to be bound by the provisions set forth in Schedule 5.2, and agrees thatthe provisions of Schedule 5.2 hereof shall be an amendment to such PrincipalProMed Shareholder’s Primary Care Provider Agreement with ProMed Pomona and ifapplicable, ProMed Upland.

5.3           Employees.  The partiesagree that Holdings or one of Holdings’ affiliates will offer an employmentcontract to each of the ProMed Executive Officers, namely: (i) Jeereddi Prasad,M.D., (ii) Kishan Thapar, M.D., and (iii) Bahram Bahremand, commencing atClosing pursuant to the terms and conditions of those employment agreementsattached as Exhibit H (the *“Prasad EmploymentAgreement”*), Exhibit I (the *“Thapar EmploymentAgreement”*) and Exhibit J, (the *“Bahremand EmploymentAgreement”*), respectively.  The parties acknowledge that as consideration for executing the ThaparEmployment Agreement and Bahremand Employment Agreement, ProMed Pomona intendsto pay stay bonuses in the amount of $1,496,096 to each of Kishan Thapar, M.D.and Bahram Bahremand prior to the Closing (“Stay Bonuses”).

5.4           Knowledge Standard.  Whenever arepresentation, warranty, covenant or agreement is qualified by the statement “tothe knowledge of”, the knowledge of ProMed Pomona shall be deemed to be theactual knowledge of Jeereddi Prasad, M.D., Kishan Thapar, M.D. and BahramBarhemand, in each case after reasonable inquiry.  Whenever a representation, warranty, covenantor agreement is qualified by the statement “to the knowledge of” any or all ofHoldings, Group or Group Subsidiary, knowledge shall be deemed to be the actualknowledge of Jacob Y.  Terner, M.D.,Chief Executive Officer of Holdings, Mike Heather, Chief Financial Officer ofHoldings, and R. Stewart Kahn, Executive Vice President of Holdings, in eachcase after reasonable inquiry.

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5.5           Tax Matters; Liability; Preparation  and Filing of Tax Returns.

(a)           Adequate Provision for Taxes. The Subsequent Monthly Interim Financial Statements shall reflect thatProMed Pomona has made adequate provision for accrued but unpaid taxes for theperiod covered by such Subsequent Monthly Interim Financial Statements.

(b)           Liability for Taxes.  The PrincipalProMed Shareholders will be liable for, and shall have properly accrued on theSubsequent Monthly Interim Financial Statements, all Taxes imposed on ProMedPomona, or for which ProMed Pomona may otherwise be liable, for any Pre-ClosingTax Period (as defined below).  ThePrincipal ProMed Shareholders shall also be liable for any Taxes arising as aresult of any breach of the representation contained in Section 2.9 andthe covenants contained in this Section 5.5, whether incurred before or afterthe Closing Date.  *“Pre-ClosingTax Period”* means any period (including the portion of any StraddlePeriod as defined in (c) below) ending on or before the date before the ClosingDate.

(c)           Straddle Periods.  Whenever itis necessary to determine the liability for Taxes of ProMed Pomona for a periodthat begins before or after the day prior to the Closing Date (a *“Straddle Period”*), the determination of the Taxes of ProMedPomona for the portion of the Straddle Period ending on and including, and theportion of the Straddle Period beginning after, the day prior to the ClosingDate will be determined by assuming that the Straddle Period consisted of twotaxable years or periods, one which ended at the close of the day prior to theClosing Date and the other which began at the beginning of the day of theClosing Date, and, items of income, gain, deduction, loss or credit of ProMedPomona for the Straddle Period will be allocated between two taxable years orperiods on a “closing of the books basis” by assuming that the books of ProMedPomona were closed at the close of the day prior to the Closing Date, provided,however, that exceptions, allowances or deductions that are calculated on anannual basis, such as the deduction for depreciation, will be apportionedbetween such two taxable years or periods on a daily basis.

(d)           Tax Returns.  Group will beresponsible for causing the preparation and filing of all tax returns that arerequired to be filed by or with respect to ProMed Pomona for the periodcommencing October 1, 2006 and ending on September 30, 2007 provided, however,that the Principal ProMed Shareholders shall be responsible for and liable forany taxes due for the Pre-Closing Period which has not been properly accrued onthe Subsequent Monthly Interim Financial Statements for the period covered bysuch Subsequent Monthly Interim Financial Statements or properly accrued andshown on the records of ProMed Pomona for the period ending on the ClosingDate.  No later than 30 days before thedue date for filing any tax return described in this subsection (d) which isrequired to be prepared by Group after Closing involving any Pre-Closing TaxPeriod, Group will deliver such tax return to the Principal ProMed Shareholdersfor their review. Group and the Principal ProMed Shareholders will attempt toresolve in good faith any disagreement arising out of any tax return.  If any such disagreement cannot be resolved,Group and the Principal ProMed Shareholders will jointly select an independentaccounting firm to act as an arbitrator to resolve such disagreement inaccordance with the terms of this Agreement. The independent accounting firm’s determination with respect to any suchtax return will be final and binding upon the parties and all parties will file(or amend, if applicable) their respective tax returns in accordance with suchdetermination.  Any fees and expensesrelated to the engagement of the independent accounting firm will be 

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shared equally by Group on the one hand and thePrincipal ProMed Shareholders on the other hand.

(e)           Contest Provisions.  Promptlyafter receipt by Group or the Principal ProMed Shareholders of written noticeof the assertion or commencement of any claim, audit, examination or otherproposed change or adjustment by the Internal Revenue Service or any state,local or foreign taxing authority having jurisdiction over ProMed Pomona or anyof its assets (*“Tax Authority”*) relating toTaxes of ProMed Pomona with respect to a Pre-Closing Tax Period (a *“Tax Claim”*), the recipient will promptly notify Group orthe Principal ProMed Shareholders, as applicable.  Such notice will contain factual information(to the extent known) describing the asserted Tax Claim in reasonable detailand will include copies of any notice or other document received from anyTaxing Authority in respect of any such asserted Tax Claim.  The failure of the Principal ProMedShareholders to receive prompt notice from Group as provided in this Agreementwill not relieve the Principal ProMed Shareholders of any of hisindemnification obligations under this Agreement except to the extent suchfailure has a material adverse effect on the Principal ProMed Shareholders’ability to defend the Tax Claim.  ThePrincipal ProMed Shareholders will have the right to represent ProMed Pomona’sinterests in any Tax audit or administrative or court proceeding relating toPre-Closing Tax Periods as to any issues that could materially affect thePrincipal ProMed Shareholders’ liability for Taxes or indemnificationobligations, and to employ counsel (reasonably acceptable to Group) of thePrincipal ProMed Shareholders’ choice at its expense; provided, however, thatGroup and their representatives will be permitted, at their expense, to bepresent at any such audit or proceeding. Notwithstanding the foregoing, the Principal ProMed Shareholders willnot be able to settle, either administratively or after the commencement oflitigation, any claim for Taxes that would adversely affect the liability forTaxes of Group or ProMed Pomona for any period after the Closing Date withoutthe written consent of Group unless the Principal ProMed Shareholders makesadequate provision to the satisfaction of Group to indemnify Group against theeffects of any such settlement.

(f)            Assistance and Cooperation. After the Closing Date, the Principal ProMed Shareholders and Groupwill:

(i)            timely sign and deliver such certificates or forms asmay be  reasonably necessary orappropriate to establish an exemption from (or otherwise reduce), or file taxreturns or other reports with respect to sales, transfer and similar Taxes;

(ii)           assist as reasonably requested by the other party inpreparing any tax return which such other party is responsible for preparingand filing in accordance with this Section 5.5 (including providing the otherparty with reasonable access to financial records for such purposes);

(iii)          cooperate in a reasonable manner in preparing for anyaudits of, or disputes with taxing authorities regarding, any tax returns ofProMed Pomona; and

(iv)          make available to the other party and to any taxingauthority as reasonably requested all information, records, and documents relatingto Taxes of ProMed Pomona.

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5.6           Due Diligence Access and Investigation. ProMed Pomona shall, through the Closing Date, (a) afford Group and itsrepresentatives and attorneys (collectively, the *“ProspectAdvisors”*) full and free access to ProMed Pomona’s properties,contracts, books and records, and other documents and data during normalbusiness hours, (b) furnish Group and the Prospect Advisors with copies of allsuch contracts, books and records, and other existing documents and data asGroup may reasonably request, and (c) furnish Group and the Prospect Advisorswith such additional financial, operating, and other data and information asGroup may reasonably request, including such information necessary to allowGroup to make a determination of the adequacy and sufficiency of the internalcontrols of ProMed Pomona (collectively, *“Due Diligence Materials”*).  ProMed Pomona shall permit the ProspectAdvisors to make copies of the Due Diligence Materials.  Neither Group nor the Prospect Advisors shalldisclose the contents of any of said Due Diligence Materials to any third partywithout prior written consent of the Principal ProMed Shareholders, except: (i)as required by law; (ii) as may be reasonably necessary in connection with anylitigation or dispute arising out of this Agreement or any of the transactionscontemplated hereunder; (iii) information contained in any such materials thatwas already in the possession of Group prior to the date of commencement ofnegotiations between the ProMed Parties and Group; (iv) information containedin any such materials that is or becomes generally available to the publicother than as a result of a disclosure by Group or its agents or employees inviolation of this Section and (v) as necessary in the reasonable operation ofthe business of ProMed Pomona and the management obligations of the same afterthe Closing Date.

5.7           Investment Representation Certificate. ProMed Pomona acknowledges that the Holdings CommonStock which constitutes the Stock Consideration has not been registered underthe Securities Act of 1933, as amended (the *“Securities Act”*).  ProMed Pomona acknowledges that the HoldingsCommon Stock is being offered and sold pursuant to an exemption fromregistration contained in the Securities Act. To rely on such exemption, ProMed Pomona acknowledges that it isnecessary that each shareholder who receives Stock Consideration execute aninvestment representation certificate in the form attached as Exhibit K (*“Investment Representation Certificate”*). ProMed Pomona agrees to provide the Investment RepresentationCertificate to each shareholder of ProMed Pomona as an exhibit to itsInformation Statement and inform each shareholder of Holdings’ requirement thatHoldings receives an executed Investment Representation Certificate from eachshareholder receiving Stock Consideration and each shareholder desiring thepiggy-back registration rights described in Section 1.15 hereof.

5.8           Information Statement.  ProMed Pomonahas prepared the Information Statement to be sent to the ProMed PomonaShareholders to solicit votes or written consents of the ProMed PomonaShareholders in connection with the transactions contemplated by thisAgreement, including the Merger, and has delivered a copy of such InformationStatement to Holdings.   Holdings willcooperate with ProMed Pomona in providing necessary information for preparationof the Information Statement. ProMed Pomona agrees to call a special meeting ofthe ProMed Pomona Shareholders or to solicit votes of the ProMed PomonaShareholders as soon as possible after the execution of this Agreement (subjectto applicable notice periods), for the purpose of approving the Merger andauthorizing the transactions contemplated hereby.  The Board of Directors of ProMed Pomona, subjectto their fiduciary duties, will recommend that the ProMed Pomona Shareholdersapprove the Merger and the transactions contemplated hereby.  

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ProMed Pomona will obtain the necessary approval ofits shareholders as required by California law to effectuate the Merger priorto the Closing.

5.9           Attorney Fees of ProMed Pomona. The legal fees of ProMed Pomona with respect to the negotiation anddrafting of the documentation in connection with the Merger and the othertransactions contemplated hereunder, which have not been accrued on theSubsequent Monthly Financial Statements but are still outstanding immediatelyafter the Closing, shall be borne solely by the Principal ProMed Shareholdersat no expense to ProMed Pomona.

5.10         Bank Accounts.  ProMed Pomonashall, prior to the Closing, provide, City National Bank, which is the bankwhere the ProMed Bank Accounts are located (*“ProMed Bank”*)with all documentation required to be provided by ProMed Pomona to allow Groupaccess to the funds in the ProMed Bank Accounts upon the Closing Date.

5.11         Amendment of Bylaws.  Prior toClosing, ProMed Pomona shall amend its Bylaws to allow acquisition of theshares by a California professional corporation whose sole shareholder is alicensed physician such as Group.

5.12         Notification.  Between thedate of this Agreement and the Closing Date, the ProMed Parties and Group agreeto promptly notify each other in writing if they become aware of any fact orcondition that causes or constitutes a breach of any of their representationsand warranties as of the date of this Agreement, or if they become aware of theoccurrence after the date of this Agreement of any fact or condition that would(except as expressly contemplated by this Agreement) cause or constitute abreach of any such representation or warranty had such representation orwarranty been made as of the time of occurrence or discovery of such fact orcondition.   If prior to the Closing anyevent, condition, fact or circumstance that is required to be disclosedpursuant to this Section 5.12 requires any change to any of the Schedules tothis Agreement, or if any such event, condition, fact or circumstance wouldrequire such a change assuming a Schedule was dated as of the date of theoccurrence, existence or discovery of such event, condition, fact orcircumstance, then ProMed Pomona and the Principal ProMed Shareholders shallpromptly deliver to Group an update to the Schedule (a *“ScheduleUpdate”*) specifying such change. Group shall have 5 business days to review such Schedule Update andabsent an objection by Group within such 5 day period, such Schedule Updateshall be deemed to supplement or amend the Schedule for the purpose ofdetermining the accuracy of any of the representations and warranties made byProMed Pomona or the Principal ProMed Shareholders in this Agreement as of theClosing.

5.13         Good Faith.  ProMed Pomonaand the Principal ProMed Shareholders on the one hand, and Group and Holdingson the other hand, agree that they will perform their obligations under thisAgreement in good faith.

5.14         Best Efforts.  So long asthis Agreement remains in effect, ProMed Pomona and the Principal ProMedShareholders on the one hand, and Group and Holdings on the other hand, shalluse their respective best efforts to cause the Transaction to be consummated assoon as reasonably practicable.  ProMedPomona and the Principal ProMed Shareholders on the one hand, and Group andHoldings on the other hand, shall proceed as soon as practicable in theprocurement of permits, consents and approvals and in the taking of any otheraction, and the 

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satisfaction of all other requirements prescribed bylaw or otherwise necessary for consummation of the Transaction on the termsherein provided, and shall diligently prosecute the same.

5.15         Physician Retention Bonus Pool.   The parties acknowledge that the purpose of the Required Minimum Cashamount of $2,877,728 required by Section 4.4 is to fund a bonus pool (*“Physician Retention Bonus”*) to compensate physicians whoagree to be exclusive to ProMed Pomona, Group and Group’s affiliates in a formreasonably acceptable to Group.   Uponreaching such agreement with Group, the physicians set forth on Schedule 5.15shall be entitled to such portion of the Physician Retention Bonus as determinedby Group.   Group acknowledges that anyphysician who agrees to the exclusivity provisions set forth in Section 5.2satisfies this requirement, provided however, that if Group deems it necessaryin Group’s reasonable judgment to have any physician execute a separateamendment document independent of this Agreement to evidence physician’sagreement to the provisions of Section 5.2, physician shall be required toexecute such separate amendment prior to receiving the Physician RetentionBonus.  Group agrees to use commerciallyreasonable efforts to obtain all amendments to the provider agreementsevidencing exclusivity and pay out such Physician Retention Bonuses on orbefore September 30, 2007.  The partiesacknowledge that the Subsequent Monthly Financial Statement and the ClosingDate Balance Sheet will contain an accrual for the obligation of ProMed Pomonato pay the Physician Retention Bonuses and that , as provided in Section 4.4,on the Closing Date ProMed Pomona will have cash sufficient to cover the PhysicianRetention Bonuses.

5.16         Post-Closing IBNR Reconciliation. Group, as owner of ProMed Pomona after the Effective Time, shall, forthe period commencing on the Effective Time and ending eighteen (18) monthsthereafter, keep an account of claims received on or after the Effective Timefor dates of service prior to the Effective Time and either paid from, or to bepaid from, IBNR funds (*“IBNR Claims”*).  On or prior to the date that is seven (7)business days after the second anniversary of the Closing Date (the *“IBNR Reconciliation Date”*), Group andRepresentative shall effect a reconciliation of the IBNR funds as set forthherein (*“IBNR Reconciliation”*).  To effect the IBNR Reconciliation, theparties shall compare the amount of the IBNR reserve that was set forth on theClosing Date Balance Sheet (*“IBNR Closing Date ReserveAmount”*) to the IBNR Claims.  If the IBNR Claims were greater the amount of the IBNR Closing DateReserve Amount plus an additional 10% above such IBNR Closing Date ReserveAmount (*“Downward IBNR Reconciliation Threshold Amount”*)then to the extent of the dollar amount by which the IBNR Claims exceeds theDownward IBNR Reconciliation Threshold Amount (*“PrincipalShareholder IBNR Reimbursement Amount”*), Group shall have the rightto effect an immediate withhold from the Indemnification Escrow Account in theamount of the Principal Shareholder IBNR Reimbursement Amount.  On the other hand, if the IBNR Claims wereless than the amount of the Closing Date Reserve Amount less an additional 10%below such IBNR Closing Date Reserve Amount (*“Upward IBNRReconciliation Threshold Amount”*) (such difference constituting the *“Group IBNR Reimbursement Amount),* Group shall be requiredto immediately deposit the dollar amount of the Group Reimbursement Amount inthe Indemnification Escrow Account for distribution to the Former Shareholdersin accordance with the terms of the Escrow Agreement.

Example: Assume that the IBNR Closing Date ReserveAmount is $5,000,000 and thus the Downward Reconciliation Threshold Amount is$5,500,000 and the Upward Reconciliation Threshold Amount is $4,500,000.  If the IBNR Claims are $5,600,000, then thePrincipal 

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Shareholder IBNR Reimbursement Amount that would be owed by thePrincipal Shareholders out of the Indemnification Escrow Amount would total$100,000 ($5,600,000 - $5,500,000). Conversely, if the IBNR Claims are $4,400,000, then the Group IBNRReimbursement Amount owed by Group by means of a credit to the IndemnificationEscrow Amount would be $100,000 ($4,500,000 - $4,400,000).

5.17         Post-Closing Balance Sheet Reconciliation: ClosingDate Balance Sheet.   Within three (3) business days of thedelivery of the Closing Date Balance Sheet as provided by Section 4.10, Groupand Representative shall effect a reconciliation of the cash and accountsreceivable, on the one hand, and the liabilities and obligations of ProMedPomona, on the other hand (the *“Closing Date BalanceSheet Reconciliation”*).  Toeffect the Closing Date Balance Sheet Reconciliation, the parties shall meetand compare the cash and accounts receivable shown on the Closing Date BalanceSheet Reserve Amount (*“Balance Sheet Cash + A/RAmounts”*) to the amount of cash and accounts receivable that was inexistence in ProMed Pomona on the Closing Date (in the case of the accountsreceivable the parties will consider any accounts receivable that wasdetermined since the date of the Closing to now be uncollectable and reflectthat as a decrease in the total amount of cash and accounts receivable left inProMed Pomona) (*“Closing Date Cash + A/R”*) andwill compare the liabilities and obligations showing on the Closing DateBalance Sheet (*“Balance Sheet Liabilities”*) tothe liabilities and obligations shown on the Subsequent Monthly InterimFinancial Statement for which the Closing Date Cash + A/R relates (*“Originally Estimated Liabilities”*).   If the Balance Sheet Liabilities weregreater than the amount of the Closing Date Cash + A/R, plus anadditional 10% above such Closing Date Cash + A/R (the  (*“Downward Balance SheetReconciliation Threshold Amount”*) then to the extent of the dollaramount by which the Balance Sheet Liabilities exceeds the Downward BalanceSheet Reconciliation Threshold Amount (*“Principal ShareholderBalance Sheet Reimbursement Amount”*), Group shall have the right toeffect an immediate withhold from the Indemnification Escrow Account in theamount of the Principal Shareholder Balance Sheet Reimbursement Amount.  On the other hand, if the Balance Sheet Liabilitieswere less than the amount of the Closing Date Cash + A/R less an additional 10%below such Closing Date Cash + A/R (*“Upward Balance SheetReconciliation Threshold Amount”*) (such difference constituting the *“Group Balance Sheet Reimbursement Amount),* Group shall berequired to immediately deposit the dollar amount of the Group Balance SheetReimbursement Amount in the Indemnification Escrow Account for distribution tothe Former Shareholders in accordance with the terms of the EscrowAgreement.   The reconciliation hereundershall exclude a reconciliation of IBNR which shall be handled in accordancewith Section 5.16 hereof.

Example: Assume the Closing Date Cash + A/R  is $5,000,000, thus the Downward BalanceSheet Reconciliation Threshold Amount is $5,500,000 and the UpwardReconciliation Threshold Amount is $4,500,000. If the Balance Sheet Liabilities are $5,600,000, then the PrincipalShareholder Balance Sheet Reimbursement Amount that would be owed by thePrincipal Shareholders out of the Indemnification Escrow Amount would total$100,000 ($5,600,000 - $5,500,000). Conversely, if the Balance Sheet Liabilities are $4,400,000, then theGroup Balance Sheet Reimbursement Amount owed by Group by means of a credit tothe Indemnification Escrow Amount would be $100,000 ($4,500,000 - $4,400,000).

Notwithstanding the foregoing, the reconciliation of liabilities andobligations in reliance on the Closing Date Balance Sheet shall not constitutea waiver by Group, the Surviving Corporation or 

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their respective directors, officers, employees, agents and affiliates,or shall not otherwise limit the indemnification obligations of the PrincipalProMed Shareholders and the ProMed Executive Officers under Article 7 hereof,for a breach of Sections 2.8, 4.4 and/or 4.10 to the extent any liabilities andobligations are not shown on the Closing Date Balance Sheet in accordance withthe representations, covenants or agreements of those Sections as to matters asof the Closing Date or the Effective Time or the accounts receivable on theClosing Date Balance Sheet, or any portion thereof, is deemed not collectible.

5.18         Further Assurances.  ProMed Pomonaand the Principal ProMed Shareholders on the one hand, and Group and Holdingson the other hand, agree that at any time and from time to time after theClosing Date they will execute and deliver to any other party such furtherinstruments or documents as may reasonably be required to give effect to theTransaction.

**ARTICLE 6.**

**DELIVERIES AND CONDITIONS**

 

6.1           Deliveries by ProMed Pomona and the ProMedShareholders on the Closing Date.  On theClosing Date, ProMed Pomona and the Principal ProMed Shareholders shall deliverto Group and Holdings:

(a)       A copy of the Articles of Incorporation of ProMedPomona, with all amendments thereto, and certificate of good standing from theState of California, both of which shall be certified as of a date within tendays prior to the Closing Date by the Secretary of State of California.

(b)           A certificate of tax good standing of ProMed Pomonafrom the Franchise Tax Board issued as of a date within ten days of the ClosingDate.

(c)           A certificate executed by the President of ProMedPomona confirming (i) the truth and correctness in all material respects of allof ProMed Pomona’s representations and warranties in this Agreement as of the ClosingDate and as of all times between the date hereof and the Closing Date, and (ii)that all agreements and covenants of ProMed Pomona specified herein to becomplied with prior to the Closing Date have been complied with.

(d)           A certificate of the Secretary of ProMed Pomona datedthe Closing Date and accompanying resolutions reflecting that the necessarycorporate action by the Board of Directors of ProMed Pomona and by shareholdersof ProMed Pomona has been taken to authorize the consummation by ProMed Pomonaof the Transaction.

(e)           Letters of resignation of all officers and directorsof ProMed Pomona dated the Closing Date.

(f)            The Prasad Employment Agreement, the Thapar EmploymentAgreement and the Bahremand Employment Agreement.

(g)           The Prasad Non-Compete Agreement, the ThaparNon-Compete Agreement and the Barhemand Non-Compete Agreement.

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(h)           Joinder Agreements from all Principal ProMedShareholders who are not listed on the signature page of this Merger Agreement.

(i)            A legal opinion from counsel to ProMed Pomona as tothe matters set forth in Exhibit L.

6.2           Conditions to the Obligations of Group, GroupSubsidiary and Holdings.  The obligation to pay theMerger Consideration as set forth in this Agreement and to consummate theTransaction is conditioned upon satisfaction, or waiver by Group, GroupSubsidiary and Holdings in writing, of all of the following on or before theClosing Date:

(a)           All of the representations and warranties of ProMedPomona and the ProMed Pomona Shareholders in this Agreement must have beenaccurate in all material respects as of the date of this Agreement, and must beaccurate in all material respects as of the Closing Date as if made on theClosing Date, except for such representations and warranties that addressmatters as of a specific date, which need only to have been true and accurateas of such date.

(b)           All of the agreements, covenants and obligations thatProMed Pomona and the Principal ProMed Shareholders are required to perform orto comply with pursuant to this Agreement at or prior to the Closing Date musthave been duly performed and complied with in all material respects.

(c)           Each document required to be delivered pursuant toSection 6.1 hereof must have been delivered to Group, Group Subsidiary andHoldings.

(d)           Since the date of this Agreement, there must not havebeen commenced or threatened against the ProMed Pomona Shareholders, ProMedPomona, or any officer or director of ProMed Pomona, any proceeding (i)involving any challenge to, or seeking damages or other relief in connectionwith part of the Transaction, or (ii) that may have the effect of preventing,delaying, making illegal, or otherwise interfering with any part of theTransaction.

(e)           Group shall have satisfactorily (in the solediscretion of Group) completed its due diligence investigation of ProMedPomona.

(f)            Group shall have obtained satisfactory (in the solediscretion of Group) financing for the cash portion of the MergerConsideration.

(g)           There shall have been no material adverse changes tothe financial condition of ProMed Pomona subsequent to its March InterimFinancial Statement.

(h)           The parties shall have obtained all necessary consentsand approvals to the Transaction, including, without limitation, all Board ofDirectors and all shareholder consents and all necessary consents or approvalsof third parties, including HMO consents.

(i)            The parties shall have obtained all necessaryapprovals from applicable state and federal regulatory authorities.

(j)            ProMed Pomona shall have executed the Agreement ofMerger.

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(k)           ProMed Pomona shall haveidentified a Representative and caused the Representative to become a party tothe Escrow Agreement.

(l)              Group, ProMed Pomona, theEscrow Agent and the Representative shall have executed and delivered the EscrowAgreement.

(m)          All conditions to the closings of the ProMed UplandAcquisition and the ProMed Company Acquisition, respectively, have beensatisfied and the consummation of each transaction is occurring simultaneouslywith the Closing herein.

6.3           Deliveries by Group, Group Subsidiary and Holdings onthe Closing Date.  On the Closing Date, Group, Group Subsidiaryand Holdings shall deliver to the ProMed Parties.

(a)           Certificates executed by the Chief Executive Officerof Group, Group Subsidiary and Holdings confirming (i) the truth andcorrectness in all material respects of all of Group’s, Group Subsidiary’s andHoldings’ representations and warranties in this Agreement as of the ClosingDate and as of all times between the date hereof and the Closing Date, and (ii)that all agreements and covenants of Group, Group Subsidiary and Holdingsspecified herein to be complied with prior to the Closing Date have beencomplied with.

(b)           Certificate of the secretaries of Group, GroupSubsidiary and Holdings dated the Closing Date, and accompanying resolutionsreflecting that the necessary corporate action by the Board of Directors ofGroup, Group Subsidiary and Holdings to authorize the consummation by Group andHoldings of the Transaction.

(c)           The Prasad Employment Agreement, the Thapar EmploymentAgreement and the Bahremand Employment Agreement.

(d)           The Prasad Non-Compete Agreement, the ThaparNon-Compete Agreement and the Barhemand Non-Compete Agreement.

(e)           A legal opinion from counsel to Group and Group Subsidiaryas to the matters set forth in Exhibit M.

(f)            The Merger Consideration described in Section 1.6hereof.

6.4           Conditions to the Obligations of ProMed Pomona and thePrincipal ProMed Shareholders.  Theobligations of ProMed Pomona and the Principal ProMed Shareholders toconsummate the Transaction is conditioned upon satisfaction, or waiver byProMed Pomona and the Principal ProMed Shareholders in writing, of all of thefollowing on or before the Closing Date:

(a)           All of the representations and warranties of Group,Group Subsidiary and Holdings in this Agreement must have been accurate in allmaterial respects as of the date of this Agreement, and must be accurate in allmaterial respects as of the Closing Date as if made on the Closing Date, exceptfor such representations and warranties that address matters as of a specificdate, which need only to have been true and accurate as of such date.

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(b)           All of the agreements, covenants and obligations thatGroup, Group subsidiary and Holdings are required to perform or to comply withpursuant to this Agreement at or prior to the Closing Date must have been dulyperformed and complied with in all material respects.

(c)           Each document required to be delivered pursuant toSection 6.3 hereof must have been delivered to ProMed Pomona and the ProMedPomona Shareholders.

(d)           Since the date of this Agreement, there must not havebeen commenced or threatened against Group, Group Subsidiary, Holdings or anyofficer or director of Group, Group Subsidiary or Holdings, any Proceeding (i)involving any challenge to, or seeking damages or other relief in connectionwith, any part of the Transaction, or (ii) that may have the effect ofpreventing, delaying, making illegal, or otherwise interfering with any part ofthe Transaction. Any third party approvals or consents required to be obtainedto effectuate the Transaction shall have been received.

(e)           The Merger shall have been approved by theshareholders of Group Subsidiary in accordance with the California Code.

(f)            Group Subsidiary shall have executed the Agreement ofMerger.

(g)           Group, ProMed Pomona, theEscrow Agent and the Representative shall have executed and delivered theEscrow Agreement.

**ARTICLE 7.**

**INDEMNIFICATION; REMEDIES**

 

7.1           Indemnification Period.  As used inthis Article 7, the *“Indemnification Period”*shall be that period of time commencing on the Closing Date and continuing fortwo (2) years thereafter.

7.2           Indemnification of Group, Group Subsidiary, Holdingsand Surviving Corporation.

(a)           The Principal ProMed Shareholders and the ProMedExecutive Officers shall, jointly and severally, indemnify, defend and holdharmless Group, Group Subsidiary, Holdings and Surviving Corporation and theirdirectors, officers, employees, agents and affiliates from and against any andall damage, loss, liability and expense (including without limitation (A)reasonable expenses of investigation and reasonable attorneys’ fees andreasonable expenses in connection with any action, suit or proceeding, (B) anyfees and expenses in connection with the retention of counsel to pursueinsurance coverage, (C) any amounts paid to defend, litigate, settle, satisfy ajudgment, or otherwise resolve disputes with the insurance carrier, if any, orthe claimant, and (D) all amounts not covered by insurance incurred or sufferedby Group, Holdings or Surviving Corporation arising out of:

(i)            any breach of the representations, warranties,covenants or agreements of ProMed Pomona and/or any Principal ProMedShareholder set forth herein excepting only any breach of the representationand warranty set forth in Section 2.10 hereof for 

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which liability is on a several, rather than joint andseveral basis, as more fully described in Subsection (b) below;

(ii)           any failure by ProMed Pomona, the Principal ProMed Shareholdersor the ProMed Executive Officers to perform or comply with any covenantcontained in this Agreement that is required to be performed or complied withby ProMed Pomona, the Principal ProMed Shareholders and/or the ProMed ExecutiveOfficers as set forth herein; and/or

(iii)          any action against Group, Holdings or SurvivingCorporation or any of their affiliates arising from or based upon an allegationof intentional tortious conduct by any officer, employee or agent of ProMedPomona (including, but not limited to, any claims of wrongful termination,sexual harassment, racial or sexual discrimination) that occurred prior to theClosing Date (collectively, the*“Prospect Indemnifiable Damages”*).

Notwithstanding the foregoing, except as otherwisespecifically provided in Section 7.2(b) and/or 7.4, none of the PrincipalProMed Shareholders or ProMed Executive Officers shall be obligated toindemnify Group, Group Subsidiary, Holdings, or Surviving Corporation for anyProspect Indemnifiable Damages in excess of the Escrow Cash in theIndemnification Escrow Account (the “*Indemnification EscrowCash” or “Indemnification Cap”).* Group, Group Subsidiary, Holdings, and/or Surviving Corporation mayobtain indemnification for any Prospect Indemnifiable Damages to which thisSection 7.2(a) relates only if it makes a claim for indemnification within theIndemnification Period defined in Section 7.1, except as otherwise provided inSection 7.2 and Section 7.4.

(b)           The Principal ProMed Shareholders and the ProMedExecutive Officers shall, on a several basis, indemnify, defend and holdharmless Group, Group Subsidiary, Holdings and Surviving Corporation and theirdirectors, officers, employees, agents and affiliates from and against any andall damage, loss, liability and expense (including without limitation (A)reasonable expenses of investigation and reasonable attorneys’ fees andreasonable expenses in connection with any action, suit or proceeding, (B) anyfees and expenses in connection with the retention of counsel to pursueinsurance coverage, (C) any amounts paid to defend, litigate, settle, satisfy ajudgment, or otherwise resolve disputes with the insurance carrier, if any, orthe claimant, and (D) all amounts not covered by insurance incurred or sufferedby Group, Holdings or Surviving Corporation arising out of any breach by suchPrincipal ProMed Shareholder or ProMed Executive Officer of his or herrepresentation and warranty provided in Section 2.10

Each Principal ProMed Shareholder and ProMed ExecutiveOfficer shall be liable for a breach of the representation and warrantydescribed in Subsection (b) above on a several basis.  The liability of each Principal ProMedShareholder and ProMed Executive Officer under this Subsection (b) shall be upto, but shall not exceed the amount set forth by the name of such PrincipalProMed Shareholder and/or ProMed Executive Officer on Schedule 7.2(b),which amount represents their Merger Consideration for their ProMed PomonaShares (the *“Individual Indemnification Limit”*). In addition, claims for indemnification under this Subsection (b) arenot subject to the Indemnification Period defined in Section 7.1 and thus maybe brought at any time subject to the applicable statute of limitations period.

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7.3           Indemnification of the ProMed Pomona Shareholders(including the Principal ProMed Shareholders) and the ProMed Executive Officers. Group, Group Subsidiary, Holdings and Surviving Corporation, jointly andseverally, agree to hold harmless, defend and indemnify the ProMed PomonaShareholders and the ProMed Executive Officers from and against any and alldamage, loss, liability and expense (including without limitation (A)reasonable expenses of investigation and reasonable attorneys’ fees andreasonable expenses in connection with any action, suit or proceeding, (B) anyfees and expenses in connection with the retention of counsel to pursueinsurance coverage, (C) any amounts paid to defend, litigate, settle, satisfy ajudgment, or otherwise resolve disputes with the insurance carrier, if any, orthe claimant; and (D) all amounts not covered by insurance incurred or sufferedby any ProMed Pomona Shareholder and/or any of the ProMed Executive Officersarising out of (i) any breach of the representations, warranties, covenants oragreements of Group, Group Subsidiary, Holdings or Surviving Corporation setforth herein and/or (ii) any failure by Group, Group Subsidiary, Holdings orSurviving Corporation to perform or comply with any covenant contained in this Agreementthat is required to be performed or complied with by Group, Group Subsidiary,Holdings or Surviving Corporation as set forth herein (the *“Seller Indemnifiable Damages”*).  Notwithstanding the foregoing, none of Group,Group Subsidiary, Holdings or Surviving Corporation shall be obligated toindemnify any ProMed Pomona Shareholder for Seller Indemnifiable Damages inexcess of the Indemnification Cap.  TheProMed Pomona Shareholders and the ProMed Executive Officers may obtainindemnification for any Seller Indemnifiable Damages to which this Section 7.3relates only if it makes a claim for indemnification within the IndemnificationPeriod defined in Section 7.1 .

7.4           Exclusion of Prospect Indemnifiable Damages fromIndemnification Period and Indemnification Cap. Notwithstanding anything in this Agreement to the contrary, neither theIndemnification Period nor the Indemnification Cap shall apply to limitProspect Indemnifiable Damages with respect to claims of Group, GroupSubsidiary, Holdings or Surviving Corporation described in (i) and (ii) below,which in each case (A) shall be limited as to period by the the statute oflimitations period applicable to claims of that particular nature and (B) shallbe limited as to amount as to any particular Principal ProMed Shareholder orProMed Executive Officer by the amount of their Individual IndemnificationLimit.

(i)            under Section 7.2(iii); and/or

(ii)           fraud.

Each Principal ProMed Shareholder and ProMed Executive Officer shall beliable for the items described in (i) and (ii) on a joint and several basiswith the other Principal ProMed Shareholders and other ProMed ExecutiveOfficers up to, but not exceeding, the amount of their Individual  Indemnification Limit.  .

7.5           Indemnification Procedures. A party seeking indemnification (the *“Indemnitee”*)shall use its best efforts to minimize any liabilities, damages, deficiencies,claims, judgments, assessments, costs and expenses in respect of whichindemnity may be sought under this Agreement. The Indemnitee shall give prompt written notice to the party from whomindemnification is sought (the *“Indemnitor”*)of the assertion of a claim for indemnification, but in no event longer thantwenty (20) days after service of process in the event litigation is 

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commenced against the Indemnitee by a thirdparty.  No such notice of assertion of aclaim shall satisfy the requirements of this Section 7.5 unless it describes inreasonable detail and in good faith the facts and circumstances, to the extentknown by Indemnitee, upon which the asserted claim for indemnification isbased.  If any action or proceeding shallbe brought in connection with any liability or claim to be indemnifiedhereunder, the Indemnitee shall provide the Indemnitor twenty (20) calendardays to decide whether to defend such liability or claim.  During such period, the Indemnitee shall takeall necessary steps to protect the interests of itself and the Indemnitor,including the filing of any necessary responsive pleadings, the seeking ofprovisional relief or other action necessary to maintain the status quo,subject to reimbursement from the Indemnitor of its expenses in doing so.  The Indemnitor shall (with, if necessary,reservation of rights) defend such action or proceeding at its expense, usingcounsel selected by the insurance company insuring against any such claim andundertaking to defend such claim, or by other counsel selected by it andapproved by the Indemnitee, which approval shall not be unreasonably withheldor delayed.  The Indemnitor shall keepthe Indemnitee fully apprised at all times of the status of the defense andshall consult with the Indemnitee prior to the settlement of any indemnifiedmatter.  The Indemnitee agrees to usereasonable efforts to cooperate with the Indemnitor in connection with itsdefense of indemnifiable claims.  In theevent the Indemnitee has a claim or claims against any third party arising outof or connected with the indemnified matter, then upon receipt of indemnification,the Indemnitee shall fully assign to the Indemnitor the entire claim or claimsto the extent of the indemnification actually paid by the Indemnitor and theIndemnitor shall thereupon be subrogated with respect to such claim or claimsof the Indemnitee.

7.6           Indemnification Escrow Account of ProMed Company;Cross-Default.  Notwithstanding anything to the contrary inthis Agreement, Group, Holdings and the surviving corporation under the ProMedCompany Acquisition and their respective directors, officers, employees, agentsand affiliates may seek indemnification for a claim under Section 7.2(a) of theProMed Company Acquisition Agreement from the Indemnification Escrow Account tothe extent funds in the indemnification escrow account established pursuant tothe ProMed  Company Acquisition Agreement(the “*ProMed Company Indemnification Escrow Account”*)  have been applied in satisfaction of claimsfor indemnification or have been reserved against pending claims related to theindemnification obligations under the ProMed Company Acquisition Agreement,leaving a deficiency for claims under the ProMed Company AcquisitionAgreement.  Thus, funds in theIndemnification Escrow Fund, which includes the ProMed Indemnification EscrowAccount and the Indemnification Escrow Account for the ProMed Company Acquisition,may be used for claims under this Agreement as well as claims under the ProMedCompany Acquisition Agreement to the extent of the cash therein and, aretherefore cross-defaulted to the extent of such funds.   Inversely, to the extent funds in the IndemnificationEscrow Account have been applied in satisfaction of claims for indemnificationor have been reserved against pending claims related to the indemnificationobligations under this Agreement, leaving a deficiency for claims under thisAgreement, Group, Holdings, and Surviving Corporation and their respectivedirectors, officers, employees, agents and affiliates, may seek indemnificationfor claims under Section 7.2(a) of this Agreement from the ProMed CompanyIndemnification Escrow Account. 

7.7           No Effect on ProMed Company Acquisition and/or ProMedUpland Acquisition.  The indemnification limitations contained inthis Article 7 do not serve to limit the 

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indemnification obligations of the parties in theProMed Company Acquisition and/or ProMed Upland Acquisition.  Therefore, each Principal ProMed Shareholderwho is also a principal shareholder, or each ProMed Executive Officer who isalso an executive officer, in the ProMed Company and/or ProMed Upland transactionsand is expressly subject in the ProMed Company and/or ProMed Uplandtransactions to an indemnification obligation therein, transactions shall beobligated to indemnify Group, Holdings, Holdings’ affiliate, ProMed Company orProMed Upland to the extent provided in such acquisition documents.  The parties acknowledge that no PrincipalProMed Shareholder or ProMed Executive Officer shall be obligated to indemnifyanyone for losses under Section 7.2 or Section 7.4  of this Agreement in an amount exceeding theaggregate consideration received in the ProMed Pomona, ProMed Company andProMed Upland transactions.  Except forthe items set forth in Section 7.2(b) and Section 7.4 hereof, no PrincipalProMed Shareholder or ProMed Executive Officer shall be obligated to indemnifyanyone in excess of the Escrow Cash in the Indemnification Escrow Account.   With respect to items set forth in Section7.2(b) and Section 7.4 hereof, no Principal ProMed Shareholder or ProMedExecutive Officer shall be obligated to indemnify anyone for claims under thisAgreement in excess of their particular Individual Indemnification Limit.  Likewise, none of Group, Group Subsidiary,the Surviving Corporation, Holdings nor any affiliate of Group or Holdingsshall be obligated to indemnify anyone in excess of the amount of fundsconstituting the Indemnification Escrow Fund for claims under this Agreementand/or the ProMed Company Acquisition Agreement.

7.8           Determination of Adverse Consequences. Any calculation of Prospect Indemnifiable Damages in respect of theindemnification obligations of the Principal ProMed Shareholders and thePrincipal ProMed Shareholders under this Article 7 shall be net of the amountof any insurance recovery actually received by any of Group or ProMedPomona.  Group shall use commerciallyreasonable efforts to secure any applicable insurance recoveries to the extentapplicable.

**ARTICLE 8.**

**TERMINATION**

 

8.1           Termination Events.  The Agreementmay, by notice given prior to or at the Closing, be terminated as follows:

(a)           Upon the mutual written consent of Group and GroupSubsidiary on the one hand and the ProMed Parties on the other hand, thisAgreement may be terminated on such terms and conditions as agreed; or

(b)           By written notice of Group and Group Subsidiary on theone hand to the ProMed Parties on the other hand if ProMed Pomona or any of thePrincipal ProMed Shareholders breaches in any material respect any of itsrepresentations or warranties or defaults in any material respect in theobservance or in the due and timely performance of any of its covenants oragreements herein contained and such breach or default shall not be cured priorto the earlier of the Closing Date or 30 days of the date of notice of breachor default served by Group or Group Subsidiary; or

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(c)           By written notice of the ProMed Parties on the onehand to Group and Group Subsidiary on the other hand if Group or GroupSubsidiary breaches in any material respect any of its representations orwarranties or defaults in any material respect in the observance or in the dueand timely performance of any of its covenants or agreements herein containedand such breach or default shall not be cured prior to the earlier of theClosing Date or 30 days of the date of notice of breach or default served bythe ProMed Parties; or

(d)           By written notice of Group and Group Subsidiary to theProMed Parties or by the ProMed Parties to Group and Group Subsidiary if anycourt of competent jurisdiction shall have issued any order, decree or rulingor taken any other action restraining, enjoining or otherwise prohibiting thecontemplated transactions; or

(e)           By written notice of Group and Group Subsidiary to theProMed Parties, or by the ProMed Parties to Group and Group Subsidiary, if anycourt, legislative body or governmental or regulatory authority has taken, oris reasonably expected to take, any action that would make the consummation ofthe transactions contemplated hereby inadvisable or undesirable as determinedby Group or the ProMed Parties in its sole discretion; or

(f)            By written notice of Group and Group Subsidiary to theProMed Parties if it shall become apparent in the judgment of Group and GroupSubsidiary reasonably exercised that any condition to Group’s or GroupSubsidiary’s obligation to close as set forth in Article 6 hereof will not be satisfiedbefore the Closing Date; or

(g)           By written notice of the ProMed Parties to Group andGroup Subsidiary if it shall become apparent in the judgment of the ProMedParties reasonably exercised that any condition to the ProMed Parties’obligation to close as set forth in Article 6 hereof will not be satisfiedbefore the Closing Date

Notwithstanding the foregoing, no party hereto may effect a terminationhereof at such time such party is in material default or breach of thisAgreement.

8.2           Effect of Termination.  Each party’sright of termination under Section 8.1 is in addition to any other rights itmay have under this Agreement or otherwise, and the exercise of a right totermination will not be an election of remedies.  If this Agreement is terminated pursuant toSection 8.1, all further obligations of the parties under this Agreement willterminate, provided, however, that if this Agreement is terminated by a partybecause of the breach of the Agreement by the other party or because one ormore of the conditions to the terminating party’s obligations under thisAgreement is not satisfied as a result of the other party’s failure to complywith its obligations under this Agreement, the terminating party’s right topursue all legal remedies will survive such termination unimpaired.

8.3           Liquidated Damages.

(a)           Notwithstanding anything to the contrary in thisAgreement, if this Agreement is terminated for any reason other than pursuantto Section 8.1(a), Section 8.1(c), Section 8.1(d), Section 8.1(e) or Section8.1(g) hereof, the parties agree and acknowledge that Group will suffer damagesthat are not practicable to ascertain. Accordingly, in the event this Agreement is terminated for any reasonother than Section 8.1(a), Section 8.1(c), Section 8.1(d),

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Section 8.1(e) or Section 8.1(g) hereof, Group shallbe entitled to the sum of Two Hundred Fifty Thousand Dollars ($250,000) payableby ProMed Pomona as liquidated damages. Group and ProMed Pomona agree that the foregoing liquidated damages arereasonable considering all the circumstances existing as of the date hereof andconstitute the parties good faith estimate of the actual damages reasonablyexpected to result from the termination of this Agreement other than underSection 8.1(a), Section 8.1(c), Section 8.1(d), Section 8.1(e) or Section8.1(g).  Notwithstanding the foregoing,the parties agree that if Group receives the $250,000 liquidated damages amountfrom ProMed Pomona as a result of a termination under this Article 8, Groupshall not be able to collect any additional liquidated damages fee under itsagreement with ProMed Upland, and Holdings shall not be able to collect anyadditional liquidated damages under its agreement with ProMed Upland and ProMedCompany, as a result of a termination of those agreements, to the extent Groupor Holdings’ receipt of such liquidated damages would exceed $250,000 in theaggregate for the termination of the agreements with ProMed Company and  ProMed Upland.

(b)           **Notwithstanding anything**to the contrary in this Agreement, if this Agreement is terminated for anyreason other than pursuant to Section 8.1(a), Section 8.1(b), Section 8.1(d),Section 8.1(e) or Section 8.1(f) hereof, the parties agree and acknowledge thatProMed Pomona will suffer damages that are not practicable to ascertain.  Accordingly, in the event this Agreement isterminated for any reason other than Section 8.1(a), Section 8.1(b), Section8.1(d), Section 8.1(e) or Section 8.1(f) hereof, ProMed Pomona shall be entitledto the sum of Two Hundred Fifty Thousand Dollars ($250,000) payable by Group asliquidated damages.  Group and ProMedPomona agree that the foregoing liquidated damages are reasonable consideringall the circumstances existing as of the date hereof and constitute the partiesgood faith estimate of the actual damages reasonably expected to result fromthe termination of this Agreement other than under Section 8.1(a), Section8.1(b), Section 8.1(d), Section 8.1(e) or Section 8.1(f).  Notwithstanding the foregoing, the partiesagree that if ProMed Pomona receives the $250,000 liquidated damages amountfrom Group as a result of a termination under this Article 8, neither ProMedCompany nor ProMed Upland shall be able to collect any additional liquidateddamages fee under the agreements for the ProMed Company Acquisition and theProMed Upland Acquisition as a result of a termination of those agreements, tothe extent ProMed Company or ProMed Upland’s receipt of such liquidated damageswould exceed $250,000 in the aggregate for the termination of the agreementswith ProMed Pomona, ProMed Upland and ProMed Company.

**ARTICLE 9.**

**MISCELLANEOUS**

 

9.1           Entire Agreement.  This Agreement, together with all exhibitsand schedules hereto, and all documents referred to herein, constitutes theentire agreement between the parties with respect to the subject matter hereof,supersedes all other and prior agreements on the same subject, whether writtenor oral, and containsall of the covenants and agreements between the parties with respect to thesubject matter hereof.  Each party tothis Agreement acknowledges that no representations, inducements, promises, oragreements orally or otherwise, have been made by the party(ies), or by anyoneacting on behalf of any party, that are not identified herein, and that no otheragreement, statement, or promise not contained in this Agreement shall be validor binding. Certain matters that are listed in the Schedules tothis Agreement are for 

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informational purposes onlyand in no event shall the listing of any matters in these Schedules be deemedto constitute an admission that such matters are required to be listed thereinby the terms of this Agreement or that such matters are otherwisematerial.  In no event shall the listingof any matters in these Schedules be deemed or interpreted to broaden orotherwise amplify any representations or warranties contained in the Agreement.

9.2           Arbitration.  In the eventof a dispute under this Agreement which is not resolved  after good faith negotiation, either Group,Group Subsidiary or the Surviving Corporation on the one hand or the ProMedParties on the other hand may demand arbitration of the matter and the mattershall be settled by arbitration conducted by a single neutral arbitrator.  Any such arbitration shall be held in Los AngelesCounty, California under the rules then in effect of the American ArbitrationAssociation.  The decision shall bewritten and shall be supported by, as agreed by the parties, either a reasonedaward or findings of fact and conclusions which shall set forth the award,judgment, decree or order awarded by the arbitrator.  The prevailing party to an arbitration shallbe entitled to recovery from the non-prevailing party of the fees of thearbitrator, the administrative costs of the arbitration, and the expenses,including, without limitation, reasonable attorneys’ fees and costs, reasonablyincurred by it in connection with the arbitration.  Judgment upon any award rendered by thearbitrator may be entered in any court having jurisdiction.  Notwithstanding the foregoing, the partiesshall have the rights to discovery in accordance with California Code of CivilProcedure Section 1283.05.

9.3           Successors andAssigns.  This Agreement and all documents andagreements referred to herein shall be binding upon and shall inure to thebenefit of the parties and their respective heirs (as applicable), legalrepresentatives, and permitted successors and assigns.  No party may assign this Agreement or therights, interests or obligations hereunder except by mutual written consent ofthe parties hereto.

9.4           NoWaiver.  No waiver of any term, provision or conditionof this Agreement, whether by conduct or otherwise, in any one or moreinstances, shall be deemed to be or be construed as a further or continuingwaiver of any such term, provision or condition or as a waiver of any otherterm, provision or condition of this Agreement.

9.5           Counterparts.  This Agreement, and any amendments hereto,may be executed in counterparts, each of which shallconstitute an original document, but which together shall constitute one andthe same instrument.

9.6           Headings.  The section headingscontained in this Agreement are inserted for convenience only and shall notaffect in any way the meaning or interpretation of this Agreement.

9.7           Notices.  Any notices requiredor permitted to be given hereunder by any party to the other shall be inwriting and shall be deemed delivered upon personal delivery; twenty-four (24)hours following deposit with a courier for overnight delivery; or five (5) businessdays  following deposit in the U.S.  Mail, registered or certified mail, postageprepaid, return- receipt requested, addressed to the parties at the followingaddresses or to such other addresses as the parties may specify in writing:

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| If to ProMed Pomona:          |   | Pomona  Valley Medical Group, Inc.   4150 E. Concours St., Suite 100   Ontario, CA 91764   Attn: Jeereddi Prasad, M.D.              |
|-------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|                          |   |                                                                                                                                |
| With a copy to:               |   | Stradling  Yocca Carlson & Rauth660 Newport Center Drive, 16th floor  Newport Beach, CA 92660Attn: Shivbir S. Grewal, Esq. |
|                          |   |                                                                                                                                |
| If to Group:                  |   | Prospect  Medical Group, Inc. 1920 East 17th Street Suite 200   Santa Ana, California 92705 Attn: Jacob Y. Terner, M.D.        |
|                          |   |                                                                                                                                |
| If to Holdings:               |   | Prospect  Medical Group, Inc.   400 Corporate Pointe, Suite 525 Culver City, CA  90230 Attn: Jacob Y.  Terner, M.D.                 |
|                          |   |                                                                                                                                |
| If to Group Subsidiary:       |   | Prospect  Medical Group, Inc. 1920 East 17th Street Suite 200   Santa Ana, California 92705 Attn: Jacob Y. Terner, M.D.        |
|                          |   |                                                                                                                                |
| In each case, with a copy to: |   | Theodora  Oringher Miller & Richman   2029  Century Park East, 6th Floor Los Angeles, CA  90067 Attn: Dale S.  Miller, Esq.     |

 

9.8           GoverningLaw.  ThisAgreement shall be governed by and construed in accordance with the laws of theState of California.

9.9           Amendment.  This Agreement may be amended at any time byagreement of the parties, provided that any amendment shall be in writing andexecuted by all parties.

9.10         Severability.  If any provision of this Agreement is held bya court of competent jurisdiction to be invalid or unenforceable, the remainingprovisions will nevertheless continue in full force and effect, unless suchinvalidity or unenforceability would defeat an essential business purpose ofthis Agreement.

9.11         Feesand Expenses.  Except as otherwise explicitly set forthherein, each party shall bear its own expenses including, without limitation, attorneys’and accountants’ fees in connection with the preparation of this Agreement andthe transactions contemplated hereby.

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9.12         Exhibitsand Schedules.  All exhibits and schedules attached to thisAgreement are incorporated herein by this referenceand all references herein to *“Agreement”*shall mean this Agreement together with all such exhibits and schedules to bedelivered at the execution of this Agreement or upon the Closing Date.

9.13         Timeof Essence.  Time is expressly made of the essence of thisAgreement and each and every provision hereof of which time of performance is afactor.

9.14         Attorneys’Fees.  Should anyparty institute any action or procedure to enforce this Agreement or anyprovision hereof, or for damages by a declaration of rights hereunder includingwithout limitation arbitration, the prevailing party in any such action orproceeding shall be entitled to receive from the other party all costs andexpenses, including without limitation reasonable attorneys’ fees, incurred bythe prevailing party in connection with such action or proceeding.

9.15         FurtherAssurances.  The parties shall take such actions andexecute and deliver such further documentation as may reasonably be required inorder to give effect to the transaction contemplated by this Agreement and theintentions of the parties hereto.

9.16         References to Dollars. All references to *“dollars”* and *“$”* shall mean United States dollars.

9.17         Construction. Whenever in this Agreement the context so requires, references to themasculine shall be deemed to include the feminine and the neuter, reference tothe neuter shall be deemed to include the masculine and feminine, references tothe plural shall be deemed to include the singular and the singular to includethe plural and references to the words *“and”* and *“or”* shall be deemed to include the inclusive usage *“and/or.”*

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IN WITNESS WHEREOF, the undersigned have executed thisAgreement as of the date first written above.
|          | *“Group”*                  |                     |
|----------|--------------------------------------|--------------------------|
| * * | * *                             |                     |
| * * | PROSPECT  MEDICAL GROUP, INC.        |                     |
| * * |                                 |                     |
| * * |                                 |                     |
| * * | By:                                  | * *                 | * * |   |
| * * | * *                             | Jacob Y. Terner,  M.D.   |   |
| * * | * *                             | Chief Executive  Officer |   |
| * * | * *                             |                     |   |
| * * | * *                             |                     |   |
| * * | *“Group  Subsidiary”*      |                     |
| * * | * *                             |                     |
| * * | PROSPECT POMONA  MEDICAL GROUP, INC. |                     |
| * * |                                 |                     |
| * * |                                 |                     |
| * * | By:                                  | * *                 | * * |
| * * | * *                             | Jacob Y. Terner,  M.D.   |
| * * | * *                             | Chief Executive  Officer |
| * * | * *                             |                     |
| * * | * *                             |                     |
| * * | *“Holdings”*               |                     |
| * * | * *                             |                     |
| * * | PROSPECT  MEDICAL HOLDINGS, INC.     |                     |
| * * |                                 |                     |
| * * |                                 |                     |
| * * | By:                                  | * *                 | * * |
| * * | * *                             | Jacob Y. Terner,  M.D.   |
| * * | * *                             | Chief Executive  Officer |
| * * | * *                             |                     |
| * * | * *                             |                     |
| * * | *“ProMed  Pomona”*         |                     |
| * * | * *                             |                     |
| * * | POMONA  VALLEY MEDICAL GROUP, INC.   |                     |
| * * |                                 |                     |
| * * |                                 |                     |
| * * | By:                                  | * *                 | * * |
| * * | * *                             | Jeereddi Prasad,  M.D.   |   |
| * * | * *                             | President                |   |
|          |                                      |                          |  |  |

 

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|          | *"Principal  ProMed Shareholder" and "ProMed Executive Officer"* |     |
|----------|--------------------------------------------------------------------------------------|----------|
| * * | * *                                                                             |     |
| * * | * *                                                                             |     |
| * * | * *                                                                             | * * |   |
| * * | Jeereddi Prasad,  M.D.                                                               |     |
| * * |                                                                                 |     |
| * * |                                                                                 |     |
| * * |                                                                                 |     |
| * * | *"ProMed  Executive Officer"*                                              |     |
| * * | * *                                                                             |     |
| * * | * *                                                                             |     |
| * * |                                                                                 |     |   |
| * * | Barham  Bahremand                                                                    |     |
| * * | * *                                                                             |
| * * | * *                                                                             |
| * * |                                                                                 |
| * * | *"ProMed  Executive Officer"*                                              |
| * * | * *                                                                             |     |
| * * | * *                                                                             |     |
| * * | * *                                                                             | * * |   |
| * * | Kishan  Thapar, M.D.                                                                 |     |

 

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