SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of September 25, 1997, is entered into
between Prospect Medical Holdings, Inc., a Delaware corporation ("Debtor"), and
Xxxxxxxxxx Xxxxxxxxx ("Secured Party"), with reference to the following facts:
R E C I T A L S
In order to induce the Secured Party to accept the Promissory Note and as a
condition thereof, Debtor has agreed to enter into this Agreement in order to
grant to the Secured Party a 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 Promissory Note. 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 Debtor's presently existing and
hereafter arising accounts (as defined in the UCC) 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 Debtor, irrespective of whether earned by
performance.
"AGREEMENT AND PLAN OF REORGANIZATION" means that certain Agreement
and Plan of Reorganization By and Among Prospect Medical Holdings, Inc. and
Sierra Medical Management, Inc. and Sinnadurai X. Xxxxxxx, M.D., Karunyan
Xxxxxxxxxxxx, M.D. and Secured Party, dated September 19, 1997.
"DEBTOR'S BOOKS" means any and all presently existing and hereafter
acquired or created books and records of 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" has the meaning assigned to it in the UCC and includes
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.
"COLLATERAL" means the following, collectively: any and all of the
Accounts, Deposit Accounts, Equipment, Inventory, Investment Property, General
Intangibles, Negotiable Collateral, and Debtor'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 acknowledgment 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 Secured Party.
"DEPOSIT ACCOUNT" means any demand, time, savings, passbook or like
account now or hereafter maintained by or for the benefit of Debtor with a bank,
savings 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," as defined in the UCC,
including documents of title, bills of lading, dock warrants, dock receipts,
warehouse receipts and other documents of Debtor, 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 Debtor 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 all "equipment," as defined in the UCC, and includes
any and all of Debtor'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 consumes 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 Debtor relating thereto, whether in the
possession and control of Debtor, or in the possession and control of a third
party for the account of Debtor.
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"FEIN" means Federal Employer Identification Number.
"GENERAL INTANGIBLES" means any and all of Debtor's presently existing
and hereafter acquired or arising "general intangibles," (as defined in the UCC)
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;
(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 Debtor 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" has the meaning assigned to it by the UCC and includes
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 Debtor or in which Debtor 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;
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(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;
(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 Debtor connected with and symbolized by any of the
aforementioned properties and assets.
"INVENTORY" has the meaning assigned to it in the UCC and includes any
and all of Debtor'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 of consignment or are raw
materials, work in process, finished materials, or materials used or consumed,
or to be used or consumed, in Debtor'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 Debtor 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 UCC.
"NEGOTIABLE COLLATERAL" means any and all of Debtor'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 Debtor, including
"proceeds" as defined in Section 9306 of the Code,
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any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to or for the account of Debtor 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 Debtor 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 person, any
and all other tangible or intangible property received upon the sale or
disposition of Collateral, and all proceeds of proceeds.
"PROMISSORY NOTE" means the Promissory Note of even date herewith, in
the amount of $250,000 made by Debtor, and payable to Secured Party.
"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 mean any and all debts, liabilities,
obligations, or undertakings owing by Debtor to Secured Party arising under,
advanced pursuant to, or evidenced by the Promissory Note or 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 Secured Party
Expenses which Debtor is required to pay or reimburse pursuant to this Security
Agreement, the Promissory Note or by law.
"SECURED PARTY" means Xxxxxxxxxx Xxxxxxxxx.
"SECURED PARTY EXPENSES" shall mean: any and all costs or expenses
required to be paid by Debtor under this Security Agreement which are paid or
advanced by Secured Party; all costs and expenses of Secured Party, including
his 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 all costs and expenses of suit incurred or
expended by Secured Party, including his 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.
"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.
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"SENIOR CREDITOR" means Imperial Bank, a California banking
corporation, or its successors and assigns, and any institution which refinances
Debtor's obligations to Imperial Bank.
"SUBORDINATION AGREEMENT" has the meaning ascribed to it in the second
paragraph of the legend set forth on the front of the Promissory Note.
"UCC" 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.
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, "include" or
"including" is not limiting, and "or" has the inclusive meaning represented by
the phrase "and/or." References in this Security Agreement to "determination"
by Secured Party include reasonable estimates (absent manifest error) by Secured
Party, as applicable (in the case of quantitative determinations) and reasonable
beliefs (absent manifest error) by Secured Party, 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. Subject only to prior liens in favor
of Senior Creditor, Debtor hereby grants to Secured Party 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. Debtor acknowledges and affirms that such security interest in the
Collateral has attached to all Collateral without further act on the part of
Secured Party or Debtor.
4. FURTHER ASSURANCES.
4.1 Debtor shall execute and deliver to Secured Party concurrently
with Debtor's execution of this Security Agreement, and from time to time at the
request of Secured Party, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages,
assignments, and all other documents that Secured Party may request, in form
satisfactory to Secured Party, to perfect and maintain perfected Secured Party's
security interests in the Collateral and in order to consummate fully all of the
transactions contemplated by this Security Agreement and the Promissory Note.
Debtor hereby irrevocably makes, constitutes, and appoints Secured Party as
Debtor's true and lawful attorney with power to sign the name of Debtor 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 Debtor in order to perfect, or continue the perfection of,
Secured
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Party's security interests in the Collateral. Debtor agrees that neither
Secured Party, nor any of his designees or attorneys-in-fact, will be liable for
any act of commission or omission, or for any error of judgment or 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 his or their gross negligence or willful
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 PROMISSORY NOTE TERMINATED, AND ALL
DEBTOR'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 Promissory Note, Debtor will: (i) at the request
of Secured Party, xxxx conspicuously all of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to Secured Party,
indicating that the Collateral is subject to the security interest granted
hereby; (ii) at the request of Secured Party, appear in and defend any action or
proceeding which may affect Debtor's title to, or the security interest of
Secured Party in, any of the Collateral; and (iii) upon demand of Secured Party,
allow inspection of Collateral by Secured Party or persons designated by Secured
Party 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), after (i) Senior Creditor has been paid in full, and (ii) all
obligations of Senior Creditor to make loans to Debtor have been terminated,
Debtor shall, immediately upon request by Secured Party, endorse (where
appropriate) and assign the Negotiable Collateral over to Secured Party, and
deliver to Secured Party actual physical possession of the Negotiable Collateral
together with any instruments of transfer or assignment, all in form and
substance satisfactory to Secured Party, in order to fully perfect the security
interest therein of Secured Party.
4.4 Subject to any prior liens in favor of Senior Creditor, Debtor
shall cooperate with Secured Party in obtaining a control agreement in form and
substance satisfactory to Secured Party with respect to all Deposit Accounts and
Investment Property.
5. REPRESENTATIONS AND WARRANTIES. In addition to the representations
and warranties of Debtor set forth in the Promissory Note, which are
incorporated herein by this reference, Debtor represents and warrants to Secured
Party that:
5.1 LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL; FEIN.
Debtor's chief executive office is located at the address set forth in Schedule
1, and all other locations where Debtor conducts business or Collateral is kept
are set forth in Schedule 1. Debtor's FEIN is 00-0000000.
5.2 LOCATIONS OF DEBTOR'S BOOKS. All locations where Debtor's Books
are kept, including all equipment necessary for accessing Debtor's Books and the
names and addresses of all service bureaus, computer or data processing
companies and other persons keeping Debtor's Books or collecting Rights to
Payment for Debtor, are set forth in Schedule 1.
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5.3 TRADE NAMES AND TRADE STYLES. All trade names and trade styles
under which Debtor presently conducts its business operations are set forth in
Schedule 1, Debtor has not, at any time during the preceding five years: (i)
been known as or used any other corporate, 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. Debtor is and shall continue to be the
sole and complete owner of the Collateral, free from any lien other than liens
in favor of Senior Creditor and the liens created hereby.
5.5 ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. (i) This
Agreement creates a security interest which is enforceable against the
Collateral in which Debtor now has rights, and will create a security interest
which is enforceable against the Collateral in which Debtor hereafter acquires
rights at the time Debtor acquires any such rights, and (ii) Secured Party 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 Debtor now has rights
(subject only to liens in favor of Senior Creditor), and will have a perfected
and first priority security interest in the Collateral in which Debtor hereafter
acquires rights at the time Debtor acquires any such rights (subject only to
liens in favor of Senior Creditor), in each case securing the payment and
performance of the Secured Obligations.
5.6 OTHER FINANCING STATEMENTS. Other than financing statements in
favor of Secured Party and financing statements filed in connection with liens
in favor of Senior Creditor, no effective financing statement naming Debtor 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, 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 (other than liens in favor of Senior
Creditor), adverse claims, counterclaims, setoffs, defaults, disputes, defenses,
retainages, holdbacks and conditions precedent of any kind of character, except
to the extent reflected by Debtor'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) Debtor has not assigned any of its rights under the Rights
to Payment other than to Senior Creditor;
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(e) all statements made, all unpaid balances and all other
information in Debtor'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) Debtor 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 Debtor, nor has any Inventory
been consigned to Debtor or consigned by Debtor to any person or is held by
Debtor for any person under any "xxxx and hold" or other arrangement.
5.9 INTELLECTUAL PROPERTY.
(a) except as set forth in Schedule 1, Debtor (directly or
through any affiliated entity) 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 Debtor's knowledge, each of the patents is valid and enforceable and
Debtor has notified Secured Party in writing of all prior art (including public
uses and sales) of which it is aware;
(d) to the best of Debtor's knowledge, no infringement or
unauthorized use presently is being made of any Intellectual Property Collateral
by any person;
(e) Debtor 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 Debtor has not, does not and will not
infringe or violate any right, privilege or license agreement of or with any
other person; and
(f) Debtor 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 Debtor has supplied Secured
Party with all information and documentation necessary to make all fixture
filings required to perfect and
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protect the priority of Secured Party'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 Debtor 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 Debtor set forth in the
Promissory Note which are incorporated herein by this reference, Debtor agrees
that, until the indefeasible payment, performance and satisfaction in full of
the Secured Obligations:
6.1 DEFENSE OF COLLATERAL. Debtor shall appear in and defend any
action, suit or proceeding which may affect its title to or right or interest
in, or Secured Party's right or interest in, the Collateral.
6.2 PRESERVATION OF COLLATERAL. Debtor 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. Debtor 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 DEBTOR'S BOOKS AND CHIEF EXECUTIVE OFFICE. Debtor
shall: (i) keep all Debtor's Books at the locations set forth in Schedule 1;
and (ii) maintain the location of Debtor's chief executive office or principal
place of business at the location set forth in Schedule 1; provided, however,
that Debtor may amend Schedule 1; so long as (a) such amendment occurs by
written notice to Secured Party not less than 30 days prior to the date on which
the location of Debtor's Books or Debtor's chief executive office or principal
place of business is changed, and (b) at the time of such written notification,
Debtor executes and delivers any financing statement amendments or fixture
filing amendments necessary to perfect or continue perfected Secured Party's
security interest in the Collateral and also obtains for Secured Party such duly
executed Collateral Access Agreement as Secured Party shall require with respect
to such new location.
6.5 LOCATION OF COLLATERAL. Debtor shall keep the Inventory and
Equipment only at the locations identified on Schedule 1; PROVIDED, HOWEVER,
that Debtor may amend Schedule 1 so long as (i) such amendment occurs by written
notice to Secured Party 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
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notification, Debtor executes and delivers any financing statements or fixture
filings perfect and continue perfected Secured Party's security interests in
such assets and also obtains for Secured Party such duly executed Collateral
Access Agreement as Secured Party shall require with respect to such new
location.
6.6 CHANGE IN NAME, TRADE NAME, TRADE STYLE OR FEIN. Debtor 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
Debtor may amend Schedule 1 so long as (i) such amendment occurs by written
notice to Secured Party 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, Debtor executes and delivers any financing
statement amendments or fixture filing amendment necessary to continue perfected
Secured Party's security interests in the Collateral.
6.7 MAINTENANCE OF RECORDS. Debtor shall keep separate, accurate and
complete Debtor's Books, disclosing Secured Party's security interest hereunder.
6.8 DISPOSITION OF COLLATERAL. Debtor shall not surrender or lose
possession of (other than to Senior Creditor or Secured Party), sell, lease,
rent, or otherwise dispose of or transfer any of the Collateral or any right or
interest therein, except to the extent permitted herein.
6.9 LIENS. Debtor shall keep the Collateral free of all liens except
liens in favor of Senior Creditor and Secured Party for the benefit of Secured
Party.
6.10 LEASED PREMISES. At Secured Party's request, Debtor shall obtain
from each person from whom Debtor leases any premises at which any Collateral is
at any time present, such Collateral Access Agreements as Secured Party may
require.
6.11 RIGHTS TO PAYMENT. Debtor 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 Secured Party;
(c) if, to the knowledge of Debtor, 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 Debtor or otherwise),
disclose such fact fully to Secured Party in Debtor's Books relating to such
Account or other Right to Payment and in connection with any report furnished by
Debtor to Secured Party relating to such Right to Payment;
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(d) furnish to Secured Party such information and reports
regarding the Rights to Payment as Secured Party may request, and upon request
of Secured Party make such demands and requests for information and reports as
Debtor 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
Secured Party shall require.
6.12 INVENTORY. Debtor shall:
(a) at such times as Secured Party shall request, prepare and
deliver to Secured Party periodic reports pertaining to the Inventory, in form
and substance satisfactory to Secured Party;
(b) upon the request of Secured Party, take a physical listing
of the Inventory and promptly deliver a copy of such physical listing to Secured
Party;
(c) not store any Inventory with a bailee, warehouse or similar
Person or on premises leased to Debtor without obtaining for Secured Party such
Collateral Access Agreements as Secured Party shall require; and
(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 Secured Party prior written notice thereof.
6.13 EQUIPMENT. Debtor shall, upon Secured Party's request, deliver
to Secured Party a report of each item of Equipment, in form and substance
satisfactory to Secured Party.
6.14 INTELLECTUAL PROPERTY COLLATERAL. Debtor shall:
(a) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral without in
each case giving Secured Party 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 Secured Party notice of any rights Debtor 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
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(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.
6.15 COPIES OF INFORMATION COLLATERAL ACCESS AGREEMENTS. Debtor shall
provide to Secured Party for the benefit of Secured Party copies of all reports,
notices or Collateral Access Agreements that it sends to Senior Creditor with
regard to the Collateral. All such Collateral Access Agreements shall be
drafted to include Secured Party, or his agents as, persons authorized to have
access to the Collateral under such agreements; provided that such right of
access shall in no way interfere with, and shall at all times be subordinate to,
Senior Creditor's rights.
7. COLLECTION OF RIGHTS TO PAYMENT. Debtor 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 Secured Party after the
occurrence of an Event of Default, subject to Senior Creditor's rights, all
remittances received by Debtor shall be held in trust for Secured Party, and, in
accordance with Secured Party's instructions, remitted to Secured Party or
deposited to an account designated by Secured Party in the form received (with
any necessary endorsements or instruments of assignment or transfer).
8. EVENTS OF DEFAULT. The occurrence of any breach by Debtor of the
Promissory Note or this Security Agreement shall constitute an event of default
("Event of Default") under this Security Agreement.
9. REMEDIES.
9.1 During the continuance of an Event of Default, subject to Senior
Creditor's rights under the Subordination Agreement, Secured Party, without
notice or demand, may do any one or more of the following, all of which are
authorized by Debtor:
(a) settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Secured Party considers advisable, and
in such cases, Secured Party will credit the Secured Obligations with only the
net amounts received by Secured Party in payment of such disputed Accounts after
deducting all Secured Party Expenses incurred or expended in connection
therewith;
(b) cause Debtor to hold all returned Inventory in trust for
Secured Party, segregate all returned Inventory from all other property of
Debtor or in Debtor's possession and conspicuously label said returned Inventory
as the property of Secured Party;
(c) without notice to or demand upon Debtor or any Debtor, make
such payments and do such acts as Secured Party considers necessary or unable to
protect his security interests in the Collateral. Debtor agrees to assemble the
Collateral if Secured Party so
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requires, and to make the Collateral available to Secured Party as Secured Party
may designate. Debtor authorizes Secured Party 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 Secured Party's determination appears to conflict with
his security interests and to pay all expenses incurred in connection therewith.
With respect to any of Debtor's owned or leased premises, Debtor hereby grants
Secured Party 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 Secured
Party's rights or remedies provided herein, at law, in equity, or otherwise;
(d) ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Secured Party is hereby granted a license or other
right to use, without charge, Debtor's labels, patents, copyrights, rights of
use of any name, trade secrets, trade 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 Debtor's rights under all licenses and all franchise agreements
shall inure to Secured Party's benefit;
(e) 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 Debtor's premises) as Secured Party
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(f) Secured Party shall give notice of the disposition of the
Collateral as follows:
(i) Secured Party shall give Debtor and each holder of
a security interest in the Collateral who has filed with Secured Party 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 Debtor, as provided in the Agreement and Plan of
Reorganization, 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 customarily sold on a recognized market. Notice to
persons other than Debtor claiming an interest in the Collateral shall be sent
to such addresses as they have furnished to Secured Party;
(iii) if the sale is to be a public sale, Secured Party
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;
(g) Secured Party may credit bid and purchase at any public
sale; and
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(h) any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Debtor. Any excess
will be returned, without interest and subject to the rights of third persons,
by Secured Party to Debtor.
9.2 Upon the exercise by Secured Party 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, Debtor agrees to execute and deliver, or will cause the
execution and delivery of, all applications, certificates, instruments,
assignments, and other documents and papers that Secured Party or any 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 Secured Party under this Security
Agreement, the Promissory Note, and all other agreements contemplated hereby and
thereby shall be cumulative. Secured Party shall have all other rights and
remedies not inconsistent herewith as provided under the UCC, by law, or in
equity. No exercise by Secured Party of any one right or remedy shall be deemed
an election of remedies, and no waiver by Secured Party of any default on
Debtor's part shall be deemed a continuing waiver of any further defaults. No
delay by Secured Party shall constitute a waiver, election or acquiescence with
respect to any right or remedy.
10. SECURED PARTY NOT LIABLE. So long as Secured Party complies with the
obligations, if any, imposed by Section 9207 of the Code, Secured Party 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 Secured Party under the Promissory Notes are no longer subject to
any right on the part of any person, including Debtor as a debtor in possession,
or any trustee (whether appointed under the Bankruptcy Code or otherwise) of
Debtor or Debtor'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 Secured Party 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 the Agreement and Plan of Reorganization.
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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 Debtor and
Secured Party; PROVIDED, HOWEVER, that Debtor may not assign this Security
Agreement nor delegate any of its duties hereunder without Secured Party's prior
written consent and any prohibited assignment or delegation shall be absolutely
void. No consent by Secured Party to an assignment by Debtor shall release
Debtor from the Secured Obligations.
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 Secured Party or Debtor, 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 Security Agreement
or the Promissory Note to which Debtor 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 Secured Party.
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. ARBITRATION.
The parties firmly desire to resolve all disputes arising hereunder without
resort to litigation in order to protect their respective business reputations
and the confidential nature of certain aspects of their relationship.
Accordingly, any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration as set forth
below.
(a) All disputes which in any manner arise out of or relate to this
Agreement or the subject matter thereof, shall be resolved exclusively by
arbitration in accordance with the provisions of this Section 15. Either party
may commence arbitration by sending a written demand for arbitration to the
other party, setting forth the nature of the controversy, the dollar amount
involved, if any, and the remedies sought, and attaching a copy of this Section
to the demand.
(b) The parties stipulate to arbitration before a single, mutually
agreed upon arbitrator sitting on the Los Angeles, California Judicial
Arbitration Mediation Services (JAMS) panel. In the event that the parties are
unable to agree upon the person chosen as arbitrator within 30 days of the
demand for arbitration, the arbitrator shall be selected in the sole discretion
of the JAMS administrator. The arbitrator shall be a member of the California
bar.
(c) The parties shall share all costs of arbitration. The
prevailing party shall be entitled to reimbursement by the other party of
such party's attorneys' fees and costs and any arbitration fees and expenses
incurred in connection with the arbitration hereunder.
(d) The substantive law of the State of California shall be applied
by the arbitrator. All proceedings in arbitration shall be in accordance
with the California Code of Civil Procedure, as amended, and the parties
shall have the right to legal discovery in any matter submitted to
arbitration in satisfaction of California Code of Civil Procedure Section
1283.05, as permitted by California Code of Civil Procedure Section 1283.1(b).
(e) Arbitration shall take place in Los Angeles, California unless
the parties otherwise agree. As soon as reasonably practicable, a hearing with
respect to the dispute or matter to be resolved shall be conducted by the
arbitrator. As soon as reasonably practicable thereunder, the arbitrator shall
arrive at a final decision, which shall be reduced to writing, signed by the
arbitrator and mailed to each of the parties and their legal counsel.
(f) All decisions of the arbitrator shall be final, binding and
conclusive on the parties and shall constitute the only method of resolving
disputes or matters subject to arbitration pursuant to this Agreement. The
arbitrator or a court of appropriate jurisdiction may issue a write of execution
to enforce the arbitrator's judgment. Judgment may be entered upon such a
decision in accordance with applicable law in any court having jurisdiction
thereof.
(g) Notwithstanding the foregoing, because time is of the essence of
this Agreement, the parties specifically reserve the right to a judicial
temporary restraining order, preliminary injunction, or other similar equitable
relief.
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(h) The decision and award of the arbitrator shall be kept
confidential by the parties to the greatest extent possible. No disclosure of
such decision or award shall be made by the parties except as required by law or
as necessary or appropriate to effect the enforcement thereof.
(i) Should either party institute any action or procedure to enforce
this Agreement or any provision hereof, or for damages by reason of any alleged
breach of this Agreement or of any provision hereof, or for a declaration of
rights hereunder (including, without limitation, arbitration), the prevailing
party in any such action or proceeding shall be entitled to receive from the
other party all costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by the prevailing party in connection with such action
or proceeding.
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
-----------------------------
/s/ Xxxxxxxxxx Xxxxxxxxx
-----------------------------------
Xxxxxxxxxx Xxxxxxxxx
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