SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of July 3, 1997, is entered into
between PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation ("Borrower") and
IMPERIAL BANK, ("Bank"), with reference to the following facts:
R E C I T A L S
A. Borrower and Bank are contemporaneously herewith entering into
the Loan Agreement; and
B. In order to induce Bank to enter into the Loan Agreement,
Borrower has agreed to enter into this Security Agreement in order to grant to
Bank a first priority security interest in the Collateral to secure prompt
payment and performance of the Secured Obligations.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS. All initially capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Loan Agreement.
In addition, as used herein, the following terms shall have the following
meanings:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated with respect to, or on account of, an Account.
"ACCOUNTS" means any and all of Borrower's presently existing and
hereafter arising accounts and rights to payment, except those evidenced by
Negotiable Collateral, arising out of the sale or lease of goods or the
rendition of services by Borrower, irrespective of whether earned by
performance.
"BANK" means Imperial Bank, a California banking corporation.
"BANK EXPENSES" shall have the meaning assigned to such term in
the Loan Agreement and shall also mean: any and all costs or expenses required
to be paid by Borrower under this Security Agreement which are paid or advanced
by Bank; all costs and expenses of Bank, including its attorneys' fees and
expenses (including attorneys' fees incurred pursuant to proceedings arising
under the Bankruptcy Code), incurred or expended to correct any default or
enforce any provision of this Security Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, irrespective of whether a sale is
consummated; and
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all costs and expenses of suit incurred or expended by Bank, including its
attorneys' fees and expenses (including attorneys' fees incurred pursuant to
proceedings arising under the Bankruptcy Code) in enforcing or defending this
Security Agreement, irrespective of whether suit is brought.
"BORROWER" means Prospect Medical Holdings, Inc., a Delaware
corporation.
"BORROWER'S BOOKS" means any and all presently existing and
hereafter acquired or created books and records of Borrower, including all
records (including maintenance and warranty records), ledgers, computer
programs, disc or tape files, printouts, runs, and other computer prepared
information indicating, summarizing, or evidencing the Accounts, Deposit
Accounts, Equipment, Inventory, Investment Property, General Intangibles and
Negotiable Collateral.
"CHATTEL PAPER" means all writings of whatever sort which
evidence a monetary obligation and a security interest in or lease of specific
goods, whether now existing or hereafter arising.
"CODE" means the California Uniform Commercial Code except, to
the extent applicable, the Uniform Commercial Code as adopted by the
jurisdiction in which any of the Collateral is located. Any and all terms used
in this Security Agreement which are defined in the Code shall be construed and
defined in accordance with the meaning and definition ascribed to such terms
under the Code, unless otherwise defined herein.
"COLLATERAL" means the following, collectively: any and all of
the Accounts, Deposit Accounts, Equipment, Inventory, Investment Property,
General Intangibles, Negotiable Collateral, and Borrower's Books, in each case
whether now existing or hereafter acquired or created, and any Proceeds or
products of any of the foregoing, or any portion thereof, and any and all
Accounts, Deposit Accounts, Equipment, Inventory, Investment Property, General
Intangibles, Negotiable Collateral, money, or other tangible or intangible
property, resulting from the sale or other disposition of the Accounts, Deposit
Accounts, Equipment, Inventory, Investment Property, General Intangibles, or
Negotiable Collateral, or any portion thereof or interest therein, and the
substitutions, replacements, additions, accessions, products and Proceeds
thereof.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Equipment or Inventory, in each case,
in form and substance satisfactory to Bank.
"DEPOSIT ACCOUNT" means any demand, time, savings, passbook or
like account now or hereafter maintained by or for the benefit of Borrower with
a bank, savings
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and loan association, credit union or like organization, and all funds and
amounts therein, whether or not restricted or designated for a particular
purpose.
"DOCUMENTS" means any and all documents of title, bills of
lading, dock warrants, dock receipts, warehouse receipts and other documents of
Borrower, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made available
to Borrower for the purpose of ultimate sale or exchange of goods or for the
purpose of loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with goods in a manner preliminary to their sale
or exchange, in each case whether now existing or hereafter acquired.
"EQUIPMENT" means any and all of Borrower's presently existing
and hereafter acquired machinery, equipment, furniture, furnishings, fixtures,
computer and other electronic data processing equipment and other office
equipment and supplies, computer programs and related data processing software,
spare parts, tools, motors, automobiles, trucks, tractors and other motor
vehicles, rolling stock, jigs, and other goods (other than Inventory, farm
products, and consumer goods), of every kind and description, wherever located,
together with any and all parts, improvements, additions, attachments,
replacements, accessories, and substitutions thereto or therefor, and all other
rights of Borrower relating thereto, whether in the possession and control of
Borrower, or in the possession and control of a third party for the account of
Borrower.
"FEIN" means Federal Employer Identification Number.
"GENERAL INTANGIBLES" means any and all of Borrower's presently
existing and hereafter acquired or arising general intangibles and other
intangible personal property of every kind and description, including:
(a) contracts and contract rights, noncompetition covenants,
licensing and distribution agreements, indemnity agreements, guaranties,
insurance policies, franchise agreements and lease agreements;
(b) deposit accounts, uncertificated certificates of deposit,
uncertificated securities, and interests in any joint ventures, partnerships or
limited liability companies;
(c) choses in action and causes of action (whether legal or
equitable, whether in contract or tort or otherwise, and however arising);
(d) licenses, approvals, permits or any other authorizations
issued by any Government Authority;
(e) Intellectual Property Collateral;
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(f) computer software, magnetic media, electronic data
processing files, systems and programs;
(g) rights of stoppage in transit, replevin and reclamation,
rebates or credits of every kind and nature to which Borrower may be entitled;
(h) purchase orders, customer lists, subscriber lists and
goodwill;
(i) monies due or recoverable from pension funds, refunds and
claims for tax or other refunds against any Governmental Authority; and
(j) other contractual, equitable and legal rights of whatever
kind and nature.
"INSTRUMENTS" means any and all negotiable instruments,
certificated securities and every other writing which evidences a right to the
payment of money, in each case whether now existing or hereafter acquired.
"INTELLECTUAL PROPERTY COLLATERAL" means the following Assets
owned or held by Borrower or in which Borrower otherwise has any interest, now
existing or hereafter acquired or arising:
(a) all patents and patent applications, domestic or foreign,
all licenses relating to any of the foregoing and all income and royalties with
respect to any licenses, all rights to xxx for past, present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and continuations
in-part thereof;
(b) all copyrights and applications for copyright, domestic or
foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship, all rights, claims and demands in any way
relating to any such copyrights or works, including royalties and rights to xxx
for past, present or future infringement, and all rights of renewal and
extension of copyright;
(c) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, all licenses relating to any of
the foregoing and all income and royalties with respect to any licenses, whether
registered or unregistered and wherever registered, all rights to xxx for past,
present or future infringement or unconsented use thereof, all rights arising
therefrom and pertaining thereto and all reissues, extensions and renewals
thereof;
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(d) all trade secrets, confidential information, customer lists,
license rights, advertising materials, operating manuals, methods, processes,
know-how, sales literature, sales and operating plans, drawings, specifications,
blue prints, descriptions, inventions, name plates and catalogs; and
(e) the entire goodwill of or associated with the businesses now
or hereafter conducted by Borrower connected with and symbolized by any of the
aforementioned properties and assets.
"INVENTORY" means any and all of Borrower's presently existing
and hereafter acquired goods of every kind and description (including goods in
transit) which are held for sale or lease, or to be furnished under a contract
of service or which have been so leased or furnished, or other disposition,
wherever located, including those held for display or demonstration or out on
lease or consignment or are raw materials, work in process, finished materials,
or materials used or consumed, or to be used or consumed, in Borrower's
business, and the resulting product or mass, and all repossessed, returned,
rejected, reclaimed and replevied goods, together with all materials, parts,
supplies, packing and shipping materials used or usable in connection with the
manufacture, packing, shipping, advertising, selling or furnishing of such
goods; and all other items hereafter acquired by Borrower by way of
substitution, replacement, return, repossession or otherwise, and all additions
and accessions thereto, and any Document representing or relating to any of the
foregoing at any time.
"INVESTMENT PROPERTY" has the meaning given to such term in the
Code.
"LOAN AGREEMENT" means that certain Revolving Credit Agreement,
dated as of even date herewith, between Borrower and Bank, as may be at any time
hereafter supplemented, modified, amended or restated.
"NEGOTIABLE COLLATERAL" means any and all of Borrower's presently
existing and hereafter acquired or arising letters of credit, advises of credit,
certificates of deposit, notes, drafts, Instruments, Documents and Chattel
Paper.
"PROCEEDS" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Collateral or other assets of Borrower,
including "proceeds" as defined in Section 9306 of the Code, any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to or for the
account of Borrower from time to time with respect to any of the Collateral, any
and all payments (in any form whatsoever) made or due and payable to Borrower
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of Governmental
Authority), any and all other amounts from time to time paid or payable under or
in connection with any of the Collateral or for or on account of any damage or
injury to or conversion of any Collateral by any
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Person, any and all other tangible or intangible property received upon the sale
or disposition of Collateral, and all proceeds of proceeds.
"RIGHTS TO PAYMENT" means all Accounts and any and all rights and
claims to the payment or receipt of money or other forms of consideration of any
kind in, to and under all General Intangibles, Negotiable Collateral and
Proceeds thereof.
"SECURED OBLIGATIONS" shall have the meaning of "Obligations"
under the Loan Agreement and shall also mean any and all debts, liabilities,
obligations, or undertakings owing by Borrower to Bank arising under, advanced
pursuant to, or evidenced by this Security Agreement, whether direct or
indirect, absolute or contingent, matured or unmatured, due or to become due,
voluntary or involuntary, whether now existing or hereafter arising, and
including all interest not paid when due and all Bank Expenses which Borrower is
required to pay or reimburse pursuant to this Security Agreement, the Loan
Agreement, the other Loan Documents or by law.
"SECURITY AGREEMENT" shall mean this Security Agreement, any
concurrent or subsequent riders, exhibits or schedules to this Security
Agreement, and any extensions, supplements, amendments, or modifications to or
in connection with this Security Agreement, or to any such riders, exhibits or
schedules.
2. CONSTRUCTION. Unless the context of this Security Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the part includes the whole,
"including" is not limiting, and "or" has the inclusive meaning represented by
the phrase "and/or." References in this Security Agreement to "determination"
by Bank include reasonable estimates (absent manifest error) by Bank, as
applicable (in the case of quantitative determinations) and reasonable beliefs
(absent manifest error) by Bank, as applicable (in the case of qualitative
determinations). The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Security Agreement refer to this Security Agreement as a
whole and not to any particular provision of this Security Agreement. Article,
section, subsection, exhibit, and schedule references are to this Security
Agreement unless otherwise specified.
3. CREATION OF SECURITY INTEREST. Borrower hereby grants to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure the prompt payment and performance of all
of the Secured Obligations. Borrower acknowledges and affirms that such
security interest in the Collateral has attached to all Collateral without
further act on the part of Bank or Borrower.
4. FURTHER ASSURANCES.
4.1 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Security Agreement, and from time to time at the
request of Bank, all financing statements, continuation financing statements,
fixture filings, security agreements, chattel mortgages, assignments, and all
other documents that Bank may request,
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in form satisfactory to Bank, to perfect and maintain perfected Bank's security
interests in the Collateral and in order to consummate fully all of the
transactions contemplated by this Security Agreement and the Loan Agreement.
Borrower hereby irrevocably makes, constitutes, and appoints Bank (and Bank's
officers, employees, or agents) as Borrower's true and lawful attorney with
power to sign the name of Borrower on any of the above-described documents or on
any other similar documents which need to be executed, recorded, or filed, and
to do any and all things necessary in the name and on behalf of Borrower in
order to perfect, or continue the perfection of, Bank's security interests in
the Collateral. Borrower agrees that neither Bank, nor any of its designees or
attorneys-in-fact, will be liable for any act of commission or omission, or for
any error of judgment or mistake of fact or law with respect to the exercise of
the power of attorney granted under this Section 4.1, other than as a result of
its or their gross negligence or wilful misconduct. THE POWER OF ATTORNEY
GRANTED UNDER THIS SECTION 4.1 IS COUPLED WITH AN INTEREST AND SHALL BE
IRREVOCABLE UNTIL ALL OF THE SECURED OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID IN
FULL, THE LOAN AGREEMENT TERMINATED, AND ALL BORROWER'S DUTIES HEREUNDER AND
THEREUNDER HAVE BEEN DISCHARGED IN FULL.
4.2 Without limiting the generality of the foregoing Section 4.1
or any of the provisions of the Loan Agreement, Borrower will: (i) at the
request of Bank, xxxx conspicuously all of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to Bank, indicating
that the Collateral is subject to the security interest granted hereby; (ii) at
the request of Bank, appear in and defend any action or proceeding which may
affect Borrower's title to, or the security interest of Bank in, any of the
Collateral; and (iii) upon demand of Bank, allow inspection of Collateral by
Bank or Persons designated by Bank at any time during normal business hours.
4.3 With respect to the Negotiable Collateral (other than drafts
received in the ordinary course of business so long as no Event of Default is
continuing), Borrower shall, immediately upon request by Bank, endorse (where
appropriate) and assign the Negotiable Collateral over to Bank, and deliver to
Bank actual physical possession of the Negotiable Collateral to Bank together
with any instruments of transfer or assignment, all in form and substance
satisfactory to Bank, in order to fully perfect the security interest therein of
Bank.
4.4 Borrower shall cooperate with Bank in obtaining a control
agreement in form and substance satisfactory to Bank with respect to all Deposit
Accounts and Investment Property.
5. REPRESENTATIONS AND WARRANTIES. In order to induce Bank to enter
into the Loan Agreement and to make Loans to Borrower, in addition to the
representations and warranties of Borrower set forth in the Loan Agreement which
are incorporated herein by this reference, Borrower represents and warrants to
Bank that on the Closing Date and thereafter on the date of each and every
Borrowing:
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5.1 LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL; FEIN.
Borrower's chief executive office is located at the address set forth in
SCHEDULE 1, and all other locations where Borrower conducts business or
Collateral is kept are set forth in SCHEDULE 1. Borrower's Fein is 00-0000000.
5.2 LOCATIONS OF BORROWER'S BOOKS. All locations where
Borrower's Books are kept, including all equipment necessary for accessing
Borrower's Books and the names and addresses of all service bureaus, computer or
data processing companies and other Persons keeping Borrower's Books or
collecting Rights to Payment for Borrower, are set forth in SCHEDULE 1.
5.3 TRADE NAMES AND TRADE STYLES. All trade names and trade
styles under which Borrower presently conducts its business operations are set
forth in SCHEDULE 1, and, except as set forth in SCHEDULE 1, Borrower has not,
at any time during the preceding five years: (i) been known as or used any other
corporate, trade or fictitious name; (ii) changed its name; (iii) been the
surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person.
5.4 OWNERSHIP OF COLLATERAL. Borrower is and shall continue to
be the sole and complete owner of the Collateral, free from any Lien other than
Permitted Liens.
5.5 ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. (i) This
Agreement creates a security interest which is enforceable against the
Collateral in which Borrower now has rights and will create a security interest
which is enforceable against the Collateral in which Borrower hereafter acquires
rights at the time Borrower acquires any such rights, and (ii) Bank has a
perfected security interest (to the fullest extent perfection can be obtained by
filing, notification to third parties, possession or control) and a first
priority security interest in the Collateral in which Borrower now has rights
(subject only to Permitted Liens), and will have a perfected and first priority
security interest in the Collateral in which Borrower hereafter acquires rights
at the time Borrower acquires any such rights (subject only to Permitted Liens),
in each case securing the payment and performance of the Secured Obligations.
5.6 OTHER FINANCING STATEMENTS. Other than financing statements
in favor of Bank and financing statements filed in connection with Permitted
Liens, no effective financing statement naming Borrower as debtor, assignor,
grantor, mortgagor, pledgor or the like and covering all or any part of the
Collateral is on file in any filing or recording office in any jurisdiction.
5.7 RIGHTS TO PAYMENT.
(a) the Rights to Payment represent valid, binding and
enforceable obligations of the Account Debtors or other Persons obligated
thereon,
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representing undisputed, bona fide transactions completed in accordance with the
terms and provisions contained in any documents related thereto, and are and
will be genuine, free from Liens, adverse claims, counterclaims, setoffs,
defaults, disputes, defenses, retainages, holdbacks and conditions precedent of
any kind of character, except to the extent reflected by Borrower's reserves for
uncollectible Rights to Payment;
(b) all Account Debtors and other obligors on the Rights to
Payment are Solvent and generally paying their debts as they come due;
(c) all Rights to Payment comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable any federal and state consumer credit laws;
(d) Borrower has not assigned any of its rights under the
Rights to Payment other than to Bank pursuant to this Agreement;
(e) all statements made, all unpaid balances and all other
information in Borrower's Books and other documentation relating to the Rights
to Payment are true and correct and in all respects what they purport to be; and
(f) Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the Rights to
Payment.
5.8 INVENTORY. No Inventory is stored with any bailee,
warehouseman or similar Person or on any premises leased to Borrower, nor has
any Inventory been consigned to Borrower or consigned by Borrower to any Person
or is held by Borrower for any Person under any "xxxx and hold" or other
arrangement.
5.9 INTELLECTUAL PROPERTY.
(a) except as set forth in SCHEDULE 1, Borrower (directly
or through any Subsidiary) does not own, possess or use under any licensing
arrangement any patents, copyrights, trademarks, service marks or trade names,
nor is there currently pending before any Governmental Authority any application
for registration of any patent, copyright, trademark, service xxxx or trade
name;
(b) all patents, copyrights, trademarks, service marks and
trade names are subsisting and have not been adjudged invalid or unenforceable
in whole or in part;
(c) all maintenance fees required to be paid on account of
any patents have been timely paid for maintaining such patents in force, and, to
the best of Borrower's knowledge, each of the patents is valid and enforceable
and Borrower has notified Bank in writing of all prior art (including public
uses and sales) of which it is aware;
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(d) to the best of Borrower's knowledge after due inquiry,
no infringement or unauthorized use presently is being made of any Intellectual
Property Collateral by any Person;
(e) Borrower is the sole and exclusive owner of the
Intellectual Property Collateral and the past, present and contemplated future
use of such Intellectual Property Collateral by Borrower has not, does not and
will not infringe or violate any right, privilege or license agreement of or
with any other Person; and
(f) Borrower owns, has material rights under, is a party
to, or an assignee of a party to all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
trade names and all other intellectual property Collateral necessary to continue
to conduct its business as heretofore conducted.
5.10 EQUIPMENT.
(a) none of the Equipment or other Collateral is affixed to
real property, except Collateral with respect to which Borrower has supplied
Bank with all information and documentation necessary to make all fixture
filings required to perfect and protect the priority of Bank's security interest
in all such Collateral which may be fixtures as against all Persons having an
interest in the premises to which such property may be affixed; and
(b) none of the Equipment is leased from or to any Person,
except as set forth in SCHEDULE 1.
5.11 DEPOSIT ACCOUNTS. The names and addresses of all financial
institutions at which Borrower maintains its Deposit Accounts, and the account
numbers and account names of such Deposit Accounts, are set forth in SCHEDULE 1.
5.12 INVESTMENT PROPERTY. All Investment Property is set forth
and described in SCHEDULE 1, and all financial institutions or financial
intermediaries holding or in possession of such Investment Property are set
forth in SCHEDULE 1.
6. COVENANTS. In addition to the covenants of Borrower set forth in
the Loan Agreement which are incorporated herein by this reference, Borrower
agrees that from the Closing Date and thereafter until the indefeasible payment,
performance and satisfaction in full of the Secured Obligations, and all of
Bank's obligations under the Loan Agreement to Borrower have been terminated:
6.1 DEFENSE OF COLLATERAL. Borrower shall appear in and defend
any action, suit or proceeding which may affect its title to or right or
interest in, or Bank's right or interest in, the Collateral.
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6.2 PRESERVATION OF COLLATERAL. Borrower shall do and perform
all acts that may be necessary and appropriate to maintain, preserve and protect
the Collateral.
6.3 COMPLIANCE WITH LAWS, ETC. Borrower shall comply with all
laws, regulations and ordinances, and all policies of insurance, relating to the
possession, operation, maintenance and control of the Collateral.
6.4 LOCATION OF BORROWER'S BOOKS AND CHIEF EXECUTIVE OFFICE.
Borrower shall: (i) keep all Borrower's Books at the locations set forth in
SCHEDULE 1; and (ii) maintain the location of Borrower's chief executive office
or principal place of business at the location set forth in SCHEDULE 1;
PROVIDED, HOWEVER, that Borrower may amend SCHEDULE 1 so long as (i) such
amendment occurs by written notice to Bank not less than 30 days prior to the
date on which the location of Borrower's Books or Borrower's chief executive
office or principal place of business is changed, and (ii) at the time of such
written notification, Borrower executes and delivers any financing statement
amendments or fixture filing amendments necessary to perfect or continue
perfected Bank's security interests in the Collateral and also obtains for Bank
such duly executed Collateral Access Agreement as Bank shall require with
respect to such new location.
6.5 LOCATION OF COLLATERAL. Borrower shall keep the Inventory
and Equipment only at the locations identified on SCHEDULE 1; PROVIDED, HOWEVER,
that Borrower may amend SCHEDULE 1 so long as (i) such amendment occurs by
written notice to Bank not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, (ii) such new location is
within the continental United States, and (iii) at the time of such written
notification, Borrower executes and delivers any financing statements or fixture
filings necessary to perfect and continue perfected Bank's security interests in
such Assets and also obtains for Bank such duly executed Collateral Access
Agreement as Bank shall require with respect to such new location.
6.6 CHANGE IN NAME, TRADE NAME, TRADE STYLE OR FEIN. Borrower
shall not change its name, trade names, trade styles or FEIN, or add any new
trade names or trade styles from those listed on SCHEDULE 1; PROVIDED, HOWEVER,
that Borrower may amend SCHEDULE 1 so long as (i) such amendment occurs by
written notice to Bank not less than 30 days prior to the date on which such new
name, trade name, trade style or FEIN becomes effective, and (ii) at the time of
such written notification, Borrower executes and delivers any financing
statement amendments or fixture filing amendments necessary to continue
perfected Bank's security interests in the Collateral.
6.7 MAINTENANCE OF RECORDS. Borrower shall keep separate,
accurate and complete Borrower's Books, disclosing Bank's security interest
hereunder.
6.8 DISPOSITION OF COLLATERAL. Borrower shall not surrender or
lose possession of (other than to Bank), sell, lease, rent, or otherwise dispose
of or transfer any of the Collateral or any right or interest therein, except to
the extent permitted by the Loan Agreement.
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6.9 LIENS. Borrower shall keep the Collateral free of all Liens
except Permitted Liens.
6.10 LEASED PREMISES. At Bank's request, Borrower shall obtain
from each Person from whom Borrower leases any premises at which any Collateral
is at any time present, such Collateral Access Agreements as Bank may require.
6.11 RIGHTS TO PAYMENT. Borrower shall:
(a) perform and observe all terms and provisions of the
Rights to Payment and all obligations to be performed or observed by it in
connection therewith and maintain the Rights to Payment in full force and
effect;
(b) enforce all Rights to Payment strictly in accordance
with their terms, and take all such action to such end as may be from time to
time reasonably requested by Bank;
(c) if, to the knowledge of Borrower, any dispute, setoff,
claim, counterclaim or defense shall exist or shall be asserted or threatened
with respect to a Right to Payment (whether with or against Borrower or
otherwise), disclose such fact fully to Bank in Borrower's Books relating to
such Account or other Right to Payment and in connection with any report
furnished by Borrower to Bank relating to such Right to Payment;
(d) furnish to Bank such information and reports regarding
the Rights to Payment as Bank may request, and upon request of Bank make such
demands and requests for information and reports as Borrower is entitled to make
in respect of the Rights to Payment; and
(e) upon the occurrence of any Event of Default, establish
such lockbox or similar arrangements for the payment of the Rights to Payment as
Bank shall require.
6.12 INVENTORY. Borrower shall:
(a) at such times as Bank shall request, prepare and
deliver to Bank periodic reports pertaining to the Inventory, in form and
substance satisfactory to Bank;
(b) upon the request of Bank, take a physical listing of
the Inventory and promptly deliver a copy of such physical listing to Bank;
(c) not store any Inventory with a bailee, warehouseman or
similar Person or on premises leased to Borrower without obtaining for Bank such
Collateral Access Agreements as Bank shall require; and
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(d) not dispose of any Inventory on a xxxx-and-hold,
guaranteed sale, sale and return, sale on approval, consignment or similar
basis, nor acquire any Inventory from any Person on any such basis, without in
each case giving Bank prior written notice thereof.
6.13 EQUIPMENT. Borrower shall, upon Bank's request, deliver to
Bank a report of each item of Equipment, in form and substance satisfactory to
Bank.
6.14 INTELLECTUAL PROPERTY COLLATERAL. Borrower shall:
(a) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral without in
each case giving Bank prior notice thereof;
(b) not allow or suffer any Intellectual Property
Collateral to become abandoned, nor any registration thereof to be terminated,
forfeited, expired or dedicated to the public;
(c) promptly give Bank notice of any rights Borrower may
obtain to any new patentable inventions, trademarks, servicemarks, copyrightable
works or other new Intellectual Property Collateral, prior to the filing of any
application for registration thereof; and
(d) diligently prosecute all applications for patents,
copyrights and trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate of
correction and like matters as shall be reasonable and appropriate in accordance
with prudent business practice, and promptly and timely pay any and all
maintenance, license, registration and other fees, taxes and expenses incurred
in connection with any Intellectual Property Collateral.
7. COLLECTION OF RIGHTS TO PAYMENT. Borrower or its agents shall
endeavor in the first instance to collect all amounts due or to become due on or
with respect to the Rights to Payment. At the request of Bank after the
occurrence of an Event of Default, all remittances received by Borrower shall be
held in trust for Bank, and, in accordance with Bank's instructions, remitted to
Bank or deposited to an account with Bank in the form received (with any
necessary endorsements or instruments of assignment or transfer).
8. EVENTS OF DEFAULT. The occurrence of any Event of Default under
the Loan Agreement shall constitute an event of default ("Event of Default")
under this Security Agreement.
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9. RIGHTS AND REMEDIES.
9.1 During the continuance of an Event of Default, Bank, without
notice or demand, may do any one or more of the following, all of which are
authorized by Borrower:
(a) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Bank considers advisable, and
in such cases, Bank will credit the Secured Obligations with only the net
amounts received by Bank in payment of such disputed Accounts after deducting
all Bank Expenses incurred or expended in connection therewith;
(b) Cause Borrower to hold all returned Inventory in trust
for Bank, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Bank;
(c) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Bank's determination appears to conflict
with its security interests and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's owned or leased premises, Borrower
hereby grants Bank a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(d) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Secured Obligations any and all (i) balances and Deposit Accounts
of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank;
(e) Hold, as cash collateral, any and all balances and
Deposit Accounts of Borrower held by Bank, to secure the full and final
repayment of all of the Secured Obligations;
(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade
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names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(h) Bank shall give notice of the disposition of the
Collateral as follows:
(i) Bank shall give Borrower and each holder of a
security interest in the Collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
(ii) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in SECTION 9.1 of the Loan
Agreement, at least 5 days before the date fixed for the sale, or at least 5
days before the date on or after which the private sale or other disposition is
to be made; no notice needs to be given prior to the disposition of any portion
of the Collateral that is perishable or threatens to decline speedily in value
or that is of a type customarily sold on a recognized market. Notice to Persons
other than Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Bank;
(iii) If the sale is to be a public sale, Bank also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(i) Bank may credit bid and purchase at any public sale;
and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Bank to Borrower.
9.2 Upon the exercise by Bank of any power, right, privilege, or
remedy pursuant to this Security Agreement which requires any consent, approval,
registration, qualification, or authorization of any Governmental Authority,
Borrower agrees to execute and deliver, or will cause the execution and delivery
of, all applications, certificates, instruments, assignments, and other
documents and papers that Bank or any
15
purchaser of the Collateral may be required to obtain for such governmental
consent, approval, registration, qualification, or authorization.
9.3 The rights and remedies of Bank under this Security
Agreement, the Loan Agreement, the other Loan Documents, and all other
agreements contemplated hereby and thereby shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of any one right or remedy
shall be deemed an election of remedies, and no waiver by Bank of any default on
Borrower's part shall be deemed a continuing waiver of any further defaults. No
delay by Bank shall constitute a waiver, election or acquiescence with respect
to any right or remedy.
10. BANK NOT LIABLE. So long as Bank complies with the obligations,
if any, imposed by Section 9207 of the Code, Bank shall not otherwise be liable
or responsible in any way or manner for: (a) the safekeeping of the Collateral;
(b) any loss or damage thereto occurring or arising in any manner or fashion or
from any cause; (c) any diminution in the value thereof; or (d) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever.
11. INDEFEASIBLE PAYMENT. The Secured Obligations shall not be
considered indefeasibly paid for purposes of this Security Agreement unless and
until all payments to Bank are no longer subject to any right on the part of any
Person, including Borrower, Borrower as a debtor in possession, or any trustee
(whether appointed under the Bankruptcy Code or otherwise) of Borrower or
Borrower's Assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. In the event that, for any reason, any portion of
such payments to Bank is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, then the obligation intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made.
12. NOTICES. All notices or demands by any party hereto to the other
party and relating to this Security Agreement shall be made in the manner and to
the addresses set forth in Section 9.1 of the Loan Agreement.
13. GENERAL PROVISIONS.
13.1 SUCCESSORS AND ASSIGNS. This Security Agreement shall bind
and inure to the benefit of the respective successors and assigns of Borrower
and Bank; PROVIDED, HOWEVER, that Borrower may not assign this Security
Agreement nor delegate any of its duties hereunder without Bank's prior written
consent and any prohibited assignment or delegation shall be absolutely void.
No consent by Bank to an assignment by Borrower shall release Borrower from the
Secured Obligations. Bank reserves its right to sell, assign, transfer,
negotiate, or grant participations in all or any part of, or any interest in,
the rights and benefits hereunder pursuant to and in accordance with the
provisions of the Loan
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Agreement. In connection therewith, Bank may disclose all documents and
information which Bank now or hereafter may have relating to Borrower,
Borrower's business, or the Collateral to any such prospective or actual
Transferee, subject to the terms of Section 9.5(e) of the Loan Agreement.
13.2 EXHIBITS AND SCHEDULES. All of the exhibits and schedules
attached hereto shall be deemed incorporated by reference.
13.3 NO PRESUMPTION AGAINST ANY PARTY. Neither this Security
Agreement nor any uncertainty or ambiguity herein shall be construed or resolved
against Bank or Borrower, whether under any rule of construction or otherwise.
On the contrary, this Security Agreement has been reviewed by each of the
parties and their counsel and shall be construed and interpreted according to
the ordinary meaning of the words used so as to accomplish fairly the purposes
and intentions of all parties hereto.
13.4 AMENDMENTS AND WAIVERS. Any provision of this Agreement or
any of the Loan Documents to which Borrower is a party may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
party asserted to be bound thereby, and then such amendment or waiver shall be
effective only in the specific instance and specific purpose for which given.
13.5 COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Security
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Security Agreement constitutes the entire agreement
and understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Security Agreement shall become effective when executed by each of
the parties hereto and delivered to Bank.
13.6 SEVERABILITY. The provisions of this Agreement are
severable. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid or
unenforceable, the remaining provisions shall remain in full force and effect
and shall be construed in the broadest possible manner to effectuate the
purposes hereof.
14. GOVERNING LAW. This Security Agreement shall be deemed to have
been made in the State of California and the validity, construction,
interpretation, and enforcement hereof, and the rights of the parties hereto,
shall be determined under, governed by, and construed in accordance with the
internal laws of the State of California, without regard to principles of
conflicts of law.
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15. JUDICIAL REFERENCE.
15.1 Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Security Agreement, which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
the date on which Borrower or Bank gives written notice to the other that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 ET SEQ. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Security Agreement, including whether such
controversy, dispute or claim is subject to the reference proceeding and except
as set forth above, the parties waive their rights to initiate any legal
proceedings against each other in any court or jurisdiction other than the
Superior Court in the County where any real property Collateral is located or
Los Angeles County if none (the "Court"). The referee shall be a retired Judge
of the Court selected by mutual agreement of the parties, and if they cannot so
agree within forty-five (45) days after the Claim Date, the referee shall be
promptly selected by the Presiding Judge of the Court (or his representative).
The referee shall be appointed to sit as a temporary judge, with all of the
powers for a temporary judge, as authorized by law, and upon selection should
take and subscribe to the oath of office as provided for in Rule 244 of the
California Rules of Court (or any subsequently enacted Rule). Each party shall
have one peremptory challenge pursuant to CCP Section 170.6. The referee shall
(a) be requested to set the matter for hearing within sixty (60) days after the
Claim Date and (b) try any and all issues of law or fact and report a statement
of decision upon them, if possible, within ninety (90) days of the Claim Date.
Any decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section 644 in any court in the State
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Security Agreement
shall be completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of
a party's refusal to provide requested discovery for any reason whatsoever,
including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production or
inspection of documents shall be responded to within ten (10) days after
service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided
herein, the Superior Court is empowered to issue temporary and/or provisional
remedies, as appropriate.
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15.2 Except as expressly set forth in this Security Agreement,
the referee shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise with respect to the
course of the reference proceeding. All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a court
reporter except that when any party so requests, a court reporter will be used
at any hearing conducted before the referee. The party making such a request
shall have the obligation to arrange for and pay for the court reporter. The
costs of the court reporter at the trial shall be borne equally by the parties.
15.3 The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this provision.
15.4 In the event that the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the Court,
in accordance with the California Arbitration Act, Section 1280 through Section
1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery as set forth hereinabove shall apply to any such arbitration
proceeding.
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IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date first set forth above.
PROSPECT MEDICAL HOLDINGS, INC.,
a Delaware corporation
By /s/ Xxxxx X. Xxxxxx, M.D.
-------------------------------------------
Title: CEO
---------------------------------------
IMPERIAL BANK,
a California banking corporation
By /s/ Xxxx X. Xxxxxxxx
-------------------------------------------
Title: SVP
---------------------------------------
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