SECURITY AGREEMENT - STOCK PLEDGE (BORROWER)
This SECURITY AGREEMENT - STOCK PLEDGE (this "AGREEMENT"), dated as of
July 3, 1997, is entered into by and between PROSPECT MEDICAL HOLDINGS, INC., a
Delaware corporation ("PLEDGOR"), and IMPERIAL BANK, a California banking
corporation ("PLEDGEE"), with reference to the following facts:
R E C I T A L S
A. Pledgor and Pledgee have entered into that certain Revolving
Credit Agreement, dated as of July 3, 1997 (as the same may be amended,
restated, modified or supplemented from time to time in accordance with its
terms, the "LOAN AGREEMENT").
B. Pledgor has agreed to provide additional security for its
obligations under the Loan Agreement by pledging to Pledgee all of Pledgor's
right, title and interest in and to the Collateral (as hereinafter defined), to
secure the Secured Obligations (as hereinafter defined).
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 mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) DEFINITIONS. All initially capitalized terms used but not
defined in this Agreement shall have the meanings ascribed to such terms in the
Loan Agreement. In addition, the following terms, as used in this Agreement,
have the following meanings:
"CERTIFICATED SECURITY, "ENDORSEMENT", "REGISTERED FORM",
"SECURITY", "SECURITY CERTIFICATE", and "UNCERTIFICATED SECURITY" have the
meanings ascribed to such terms in Division 8 of the Code.
"CODE" means the California Uniform Commercial Code, as
amended and supplemented from time to time, and any successor statute.
"COLLATERAL" means all of the following:
(i) One Thousand Six Hundred (1,600) shares of the
outstanding Common Stock of Company, which shares constitute one hundred percent
(100%) of the capital stock of Company, and all of the hereafter-acquired shares
of Common Stock of Company in which Pledgor has an interest at any time while
this Agreement is in effect (collectively, the "SHARES");
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(ii) All of Pledgor's presently existing and hereafter
arising stock subscription warrants, stock options, or other rights to purchase
Company's capital stock and all rights represented thereby (the "OPTIONS"); and
(iii) The proceeds of each of the foregoing, including any
and all dividends, cash, stock, instruments, and other property from time to
time received, receivable, or otherwise distributed in respect of or in exchange
for any of the Shares or Options (the "PROCEEDS").
"COMPANY" means Prospect Medical Systems, Inc., a Delaware
corporation.
"EVENT OF DEFAULT" has the meaning given to such term in
Section 11.
"SECURED OBLIGATIONS" means Obligations (as defined in the
Loan Agreement) and the obligations of Pledgor hereunder.
"'33 ACT" means the Securities Act of 1933, as amended and
supplemented from time to time, and any successor statute, and any and all rules
promulgated in connection therewith.
(b) CONSTRUCTION. Unless the context of this 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 Agreement to "determination" by Pledgee include reasonable
estimates (absent manifest error) by Pledgee, as applicable (in the case of
quantitative determinations) and reasonable beliefs (absent manifest error) by
Pledgee, as applicable (in the case of qualitative determinations). The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Article, section, subsection, exhibit, and schedule references are
to this Agreement unless otherwise specified.
2. PLEDGE. As security for the prompt and complete payment and
performance of the Secured Obligations, Pledgor hereby delivers, pledges, and
grants to Pledgee a continuing security interest in all of Pledgor's now-owned
or hereafter-acquired right, title, and interest in and to the Collateral.
3. CONTROL OF COLLATERAL. Pledgor shall promptly deliver to Pledgee
any and all Certificated Securities comprising all or any portion of the
Collateral for Pledgee to hold pursuant to the terms hereof, and if such
Certificated Securities are in Registered Form, (i) such Certificated Securities
shall be endorsed in blank by an effective undated Endorsement, in form and
substance satisfactory to Pledgee in its sole and absolute discretion, or (ii)
Pledgor shall cause the Company or the Company's transfer agent to transfer such
Securities into the name of Pledgee and issue a replacement Security
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Certificate evidencing the same in the name of Pledgee. In the event that all
or any portion of the Collateral consists of Uncertificated Securities, Pledgor
shall cause the Company to enter into a control agreement with respect to such
Uncertificated Securities, in form and substance satisfactory to Pledgee in its
sole and absolute discretion.
4. FURTHER ASSURANCES. Pledgor agrees that it shall cooperate with
Pledgee and shall execute and deliver, or cause to be executed and delivered, to
Pledgee all stock powers, proxies, assignments, financing statements,
instruments, control agreements and other documents, and shall take all further
action, at the expense of Pledgor, from time to time requested by Pledgee, in
order to maintain a continuing, first-priority, perfected security interest in
the Collateral in favor of Pledgee, and to enable Pledgee to exercise and
enforce its rights and remedies hereunder with respect to the Collateral, and
Pledgor agrees that it shall execute and deliver to Pledgee at Pledgee's request
any further applications, agreements, documents and instruments, and shall
perform any and all acts deemed necessary by Pledgee to carry into effect the
terms, conditions, and provisions of this Agreement and the transactions
connected herewith. Should Pledgor fail to execute or deliver any such
applications, agreements, documents, financing statements and instruments, or to
perform any such acts, Pledgor acknowledges that Pledgee may execute and deliver
the same and perform such acts in the name of Pledgor and on its behalf as its
attorney-in-fact in accordance with Section 13.
5. PLEDGEE'S DUTIES. Pledgee shall not have any duties with respect
to the Collateral other than the duty to use reasonable care if the Collateral
is in its possession. In accordance with Section 9207 of the Code, Pledgee
shall be deemed to have used reasonable care if it observes substantially the
same standard of care with respect to the custody or preservation of the
Collateral as it observes with respect to similar assets owned by Pledgee.
Without limiting the generality of the foregoing, Pledgee shall be under no
obligation to take any steps necessary to preserve rights in the Collateral
against any other parties, to sell the same if it threatens to decline in value,
or to exercise any rights represented thereby (including rights with respect to
calls, conversions, exchanges, maturities, or tenders); PROVIDED, HOWEVER, that
Pledgee may, at its option, do so, and any and all expenses incurred in
connection therewith shall be for the account of Pledgor.
6. VOTING RIGHTS; DIVIDENDS; ETC.
6.1 During the term of this Agreement, and as long as no Event
of Default is continuing:
(a) Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Shares or any part thereof;
PROVIDED, HOWEVER, no vote shall be cast or any consent, waiver or ratification
given or any action taken which would violate or be inconsistent with the terms
of this Agreement, the Loan Agreement or any other instrument or agreement
referred to therein or herein, or which could have the effect of impairing the
value of the Collateral or any part thereof or the position or interest of
Pledgee therein.
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(b) Pledgor shall be entitled to receive and retain any and
all dividends and distributions paid in respect of the Shares not otherwise
prohibited by the Loan Agreement; PROVIDED, HOWEVER, that any and all:
(i) dividends and distributions paid or payable
other than in cash in respect of, and any and all additional Shares or
instruments or other property received, receivable, or otherwise distributed in
respect of, or in exchange for, any Shares;
(ii) dividends and distributions paid or payable in
cash in respect of any Shares in connection with a partial or total liquidation
or dissolution, merger, consolidation of the Company, or any exchange of stock,
conveyance of assets, or similar corporate reorganization; and
(iii) cash paid with respect to, payable, or
otherwise distributed on redemption of, or in exchange for, any Shares,shall be
forthwith delivered to Pledgee to hold as Collateral and shall, if received by
Pledgor, be received in trust for the benefit of Pledgee, be segregated from the
other property or funds of Pledgor, and be forthwith delivered to Pledgee as
Collateral in the same form as so received (with any necessary endorsement),
and, if deemed appropriate by Pledgee, Pledgor shall take such actions,
including the actions described in Section 2, as Pledgee may require.
6.2 Upon the occurrence of an Event of Default or if any amounts
shall be due and payable (whether by acceleration, maturity, or otherwise) under
any of the Secured Obligations, all rights of Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 6.1(a) and to receive the dividends and distributions that it would
otherwise be authorized to receive and retain pursuant to Section 5.1(b) shall,
at Pledgee's option, cease, and all such rights shall, at Pledgee's option,
thereupon become vested in Pledgee, and Pledgee shall, at its option, thereupon
have the sole right to exercise such voting and other consensual rights and to
receive and hold as Collateral such dividends and interest payments. Any
payments received by Pledgor contrary to the provisions of this Section 6.2
shall be held in trust by Pledgor for the benefit of Pledgee, shall be
segregated from other funds of Pledgor, and shall be promptly paid over to
Pledgee, with any necessary endorsement.
7. REPRESENTATIONS, WARRANTIES, AND COVENANTS. In order to induce
Pledgee to enter into the Loan Agreement and make and continue to make Loans to
Pledgor, Pledgor hereby warrants, represents, and covenants that:
7.1 There are no restrictions upon the transfer of any of the
Collateral to or by Pledgee and Pledgor is the sole beneficial owner of the
Collateral and has the right to pledge and grant a security interest in or
otherwise transfer such Collateral free of any encumbrances or rights of third
Persons.
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7.2 All of the Collateral is and shall remain free from all
Liens except as created hereby. Pledgor shall not, without Pledgee's prior
written consent, sell or otherwise dispose of any of the Collateral.
7.3 The execution and delivery of this Agreement, and the
completion of the actions described in Section 3, creates a valid, perfected and
first-priority security interest in the Collateral in favor of Pledgee, and all
actions necessary or desirable to such perfection have been duly taken.
7.4 No authorization or other action by, and no notice to or
filing with, any Governmental Authority is required either: (a) for the grant
by Pledgor of the security interest granted hereby or for the execution,
delivery, or performance of this Agreement by Pledgor; (b) for the perfection of
or exercise by Pledgee of its rights and remedies hereunder except as may be
required in connection with a disposition of the Collateral by laws affecting
the offering and sale of securities generally; or (c) for the exercise by
Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement except as may
be required in connection with a disposition of the Collateral by laws affecting
the offering and sale of securities generally.
7.5 The pledge of the Collateral pursuant to this Agreement, and
the making of the loans in accordance with the terms of the Loan Agreement, does
not violate Regulation G, T, U, or X of the Board of Governors of the Federal
Reserve System.
7.6 The Company presently has issued and outstanding One
Thousand Six Hundred (1,600) shares of Common Stock of which one hundred percent
(100%) is owned by Pledgor and they constitute, respectively, all of the capital
stock of Company and the Shares referenced herein.
7.7 There are no presently existing Options.
7.8 All of the outstanding Shares have been duly and validly
issued by the Company, and they are fully paid and nonassessable.
7.9 Pledgor has made its own arrangements for keeping informed
of changes or potential changes affecting the Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers, and voting rights), and
Pledgor agrees that Pledgee shall not have any responsibility or liability for
informing Pledgor of any such changes or potential changes or for taking any
action or omitting to take any action with respect thereto.
7.10 Pledgor shall at all times keep its books and records
concerning the Collateral at its chief executive office. Pledgor shall not
change the location of its chief executive office without giving Pledgee at
least thirty (30) days' prior written notice thereof.
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7.11 Pledgor shall prevent the Company from issuing any
additional Shares or Options.
8. SHARE ADJUSTMENTS. In the event that during the term of this
Agreement any reclassification, readjustment, or other change is declared or
made in the capital structure of any Company, Pledgor shall give Pledgee prompt
written notice thereof and all new substituted and additional shares or other
Securities, issued or issuable to Pledgor by reason of any such change or
exercise shall be subject to the security interest created hereby and Pledgor
shall as soon as practicable but in no event more than 10 days thereafter, take
all of the actions required under Section 3 with respect thereto.
9. OPTIONS. In the event that during the term of this Agreement
Options shall be issued or exercised in connection with the Collateral, Pledgor
shall give Pledgee prompt written notice thereof and such Options acquired by
Pledgor shall be immediately assigned by Pledgor to Pledgee pursuant to an
assignment agreement in form and substance satisfactory to Pledgee in its sole
and absolute discretion, and all new shares or other Securities so acquired by
Pledgor shall also be subject to the security interest created hereby and
Pledgor shall as soon as practicable but in no event more than 10 days
thereafter, take all of the actions required under Section 3 with respect
thereto.
10. CONSENT. Pledgor hereby consents that, from time to time, before
or after the occurrence or existence of any Event of Default with or without
notice to or assent from Pledgor, any other security at any time held by or
available to Pledgee for any of the Secured Obligations or any other security at
any time held by or available to Pledgee of any other person, firm, or
corporation secondarily or otherwise liable for any of the Secured Obligations,
may be exchanged, surrendered, or released and any of the Secured Obligations
may be changed, altered, renewed, extended, continued, surrendered, compromised,
waived, or released, in whole or in part, as Pledgee may see fit. Pledgor shall
remain bound under this Agreement notwithstanding any such exchange, surrender,
release, alteration, renewal, extension, continuance, compromise, waiver, or
inaction, or extension of further credit.
11. EVENTS OF DEFAULT. The occurrence of an Event of Default under
the Loan Agreement shall constitute an event of default ("EVENT OF DEFAULT")
under this Agreement.
12. REMEDIES UPON DEFAULT.
12.1 Upon the occurrence of an Event of Default, Pledgee shall
have, in addition to any other rights given by law or in this Agreement, in the
Loan Agreement, or in any other agreement between Pledgee and Pledgor, all of
the rights and remedies with respect to the Collateral of a secured party under
the Code, and also shall have, without limitation, the following rights, which
Pledgor hereby agrees to be commercially reasonable:
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(a) to receive all amounts payable in respect of the
Collateral to Pledgor under Section 6.1(b) hereof;
(b) to register all or any part of the Collateral on the
books of the Company in Pledgee's name or the name of its nominee or nominees;
(c) to vote all or any part of the Shares (whether or not
transferred into the name of the Pledgee) in accordance with Section 6.2 hereof,
and give all consents, waivers and ratifications in respect of the Collateral
and otherwise act with respect thereto as though it were the outright owner
thereof; PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS PLEDGEE THE PROXY
AND ATTORNEY-IN-FACT OF PLEDGOR, COUPLED WITH AN INTEREST, WITH FULL POWER OF
SUBSTITUTION FOR ANY AND ALL OF SUCH PURPOSES; WHICH PROXY AND POWER OF
ATTORNEY SHALL CONTINUE IN FULL FORCE AND EFFECT AND TERMINATE UPON THE EARLIER
TO OCCUR OF (a) UPON THE INDEFEASIBLE PAYMENT IN FULL OF THE SECURED
OBLIGATIONS, AND (b) TEN (10) YEARS FROM THE DATE HEREOF.
(d) at any time or from time to time, to sell, assign and
deliver, or grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale, without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby waived by
Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine; PROVIDED,
that at least five (5) days notice of the time and place of any such sale shall
be given to Pledgor. Pledgee shall not be obligated to make any such sale of
Collateral regardless of whether any such notice of sale has therefore been
given. Pledgor hereby waives any other requirement of notice, demand, or
advertisement for sale, to the extent permitted by law. Pledgor hereby waives
and releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and any other
security for the Secured Obligations or otherwise. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase all or any part
of the Collateral so sold free from any such right or equity of redemption.
Pledgee shall not be liable for failure to collect or realize upon any or all of
the Collateral or for any delay in so doing nor shall Pledgee be under any
obligation to take any action whatsoever with regard thereto;
(e) to buy the Collateral, in its own name, or in the name
of a designee or nominee. Pledgee shall have the right to execute any document
or form, in its name or in the name of the Pledgor, that may be necessary or
desirable in connection with such sale of the Collateral.
(f) to sell all or any part of the Collateral by a private
placement, restricting bidders and prospective purchasers to those who will
represent and agree that they are purchasing for investment only and not for
distribution. In so doing,
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Pledgee may solicit offers to buy the Collateral, or any part of it for cash,
from a limited number of investors deemed by Pledgee, in its reasonable
judgment, to be responsible parties who might be interested in purchasing the
Collateral. If Pledgee shall solicit such offers from not less than four (4)
such investors, then the acceptance by Pledgee of the highest offer obtained
therefore shall be deemed to be a commercial reasonable method of disposition of
such Collateral, even though the sales price established and/or obtained may be
substantially less than the price that would be obtained pursuant to a public
offering. Notwithstanding the foregoing, should Pledgee determine that, prior
to any public offering of any securities contained in the Collateral, such
securities should be registered under the '33 Act and/or registered or qualified
under any other federal or state law, and that such registration and/or
qualification is not practical, Pledgor agrees that it will be commercially
reasonable if a private sale is arranged so as to avoid a public offering even
if offers are solicited from fewer than four (4) investors, and even though the
sales price established and/or obtained may be substantially less than the price
that would be obtained pursuant to a public offering.
13. PLEDGEE AS PLEDGOR'S ATTORNEY-IN FACT. Pledgor hereby
irrevocably appoints Pledgee as its attorney-in-fact, coupled with an interest,
(i) to arrange for the register, at any time after the occurrence of an Event of
Default, of the Collateral on the books of the Company to the name of Pledgee or
to the name of Pledgee's nominee and (ii) to receive, endorse and collect all
instruments made payable to Pledgor of any dividend, distribution or other
payment on account of the Collateral, or any part thereof, and to give full
discharge for the same and to execute and file governmental notifications and
reporting forms. Pledgor hereby further authorizes Pledgee to perform any and
all acts which Pledgee deems necessary for the protection and preservation of
the Collateral or of the value of Pledgee's security interest therein, including
but not limited to receiving income thereon as additional security hereunder,
and all expenses paid or incurred by Pledgee in connection therewith shall
constitute Bank Expenses. Pledgor hereby further grants to Pledgee a power of
attorney coupled with an interest to execute all agreements, forms,
applications, documents and instruments and to take all actions and do all
things as could be executed, taken, or done by Pledgor in connection with the
protection and preservation of the Collateral or this Agreement. This power of
attorney is irrevocable and authorizes Pledgee to act for Pledgor in connection
with the matters described herein without notice to or demand upon Pledgor.
14. GENERAL PROVISIONS.
14.1 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. The
enumeration herein of Pledgee's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Pledgee may have under the
Loan Agreement, the Loan Documents, the Code, or other applicable law. Pledgee
shall have the right, in its sole discretion, to determine which rights and
remedies are to be exercised and in which order. The exercise of one right or
remedy shall not preclude the exercise of any others, all of which shall be
cumulative.
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14.2 NO IMPLIED WAIVERS. No act, failure, or delay by Pledgee
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by Pledgee of any provision of this Agreement or any other Loan
Document, or of a breach or default hereunder or thereunder, or of any right or
remedy which the Pledgee may have, shall operate as a waiver of any other
provision, breach, default, right, or remedy or of the same provision, breach,
default, right, or remedy on a future occasion. No waiver by Pledgee shall
affect its rights to require strict performance of this Agreement.
14.3 NOTICES. All notices or demands by any party hereto to the
other party and relating to this Agreement shall be sent in accordance with the
terms of Section 9.1 of the Loan Agreement.
14.4 SUCCESSORS AND ASSIGNS. This Agreement shall bind the
successors and assigns of Pledgor, and shall inure to the benefit of the
successors and assigns of Pledgee; PROVIDED, HOWEVER, that Pledgor may not
assign this Agreement nor delegate any of its duties hereunder without Pledgee's
prior written consent and any prohibited assignment shall be absolutely void.
Pledgee may assign this Agreement and its rights and duties hereunder and no
consent or approval by Pledgor is required in connection with any such
assignment. Pledgee reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Pledgee's rights
and benefits hereunder. In connection with any such assignment or
participation, Pledgee may disclose all documents and information which Pledgee
now or hereafter may have relating to Pledgor or Pledgor's business to any
prospective or actual Transferee, subject to the terms of Section 9.5(e) of the
Loan Agreement.
14.5 EXHIBITS AND SCHEDULES. All of the exhibits and schedules
attached hereto shall be deemed incorporated by reference.
14.6 NO PRESUMPTION AGAINST ANY PARTY. Neither this Agreement
nor any uncertainty or ambiguity herein shall be construed or resolved against
Pledgor or Pledgee, whether under any rule of construction or otherwise. On the
contrary, this 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.
14.7 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
14.8 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is for any reason held to be invalid, illegal or unenforceable in any
respect, that provision shall not affect the validity, legality or
enforceability of any other provision of this Agreement.
14.9 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
constitutes the entire agreement between Pledgor and Pledgee pertaining to the
subject
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matter contained herein. Any provision of this Agreement 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.
14.10 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement
may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
a manually executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver a
manually executed counterpart of this Agreement but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
14.11 TERMINATION BY PLEDGEE. After termination of the Loan
Agreement and when Pledgee has received payment and performance, in full, of the
Secured Obligations, Pledgee shall execute and deliver to Pledgor a termination
of all of the security interests granted by Pledgor hereunder and, to the extent
they have been delivered to Pledgee and not disposed of in accordance with this
Agreement, certificates evidencing the Shares.
15. GOVERNING LAW; JUDICIAL REFERENCE.
15.1 GOVERNING LAW. This 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.
15.2 JUDICIAL REFERENCE.
(a) 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 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 a party subject to this Agreement gives written notice to all
other parties 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 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
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where the Real Property, if any, 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 date of selection of the
referee 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 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.
(b) Except as expressly set forth in this 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.
(c) 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
11
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.
(d) 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
"PLEDGOR"
PROSPECT MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxx, M.D.
-----------------------------
Title: CEO
---------------------
"Pledgee"
IMPERIAL BANK,
a California banking corporation
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------
Title: SVP
---------------------
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CONTROL AGREEMENT
Prospect Medical Systems, Inc., a Delaware corporation ("COMPANY")
hereby acknowledges the terms of the foregoing Security Agreement - Stock Pledge
(the "AGREEMENT"), dated as of July 3, 1997, by and between Prospect Medical
Holdings, Inc., a Delaware corporation ("PLEDGOR"), and Imperial Bank, a
California banking corporation ("PLEDGEE"). Company agrees that it will comply
with all instructions from Pledgee with respect to transfers of all or any part
of the Collateral (as defined in the Agreement), whether by sale or otherwise,
without further consent from Pledgor. Company further acknowledges and agrees
that it has received a copy of the Agreement and has registered the pledge of
the Collateral (as defined in the Agreement) in the name of Pledgee. Company
acknowledges that, in entering into the Loan Agreement (as defined in the
Agreement), Pledgee is relying on the Agreement and on Company's agreement
herein; and Company agrees that any offset or claim Company may now or hereafter
have against Pledgor (or against Pledgor's interests, claims or rights) shall be
subordinate to the claims, rights and interests of Pledgee under the Agreement.
The signatories below hereby represent and warrant to Pledgee that they are duly
authorized to execute and deliver this Control Agreement to Pledgee and thereby
bind the Company as set forth herein.
Dated: July 3, 1997 PROSPECT MEDICAL SYSTEMS, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxx, M.D.
----------------------------
Title: CEO
--------------------
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