SECURITY AGREEMENT
(Guarantor)
This SECURITY AGREEMENT, dated as of September 25, 1997, is entered into
between Prospect Medical Holdings, Inc., a Delaware corporation ("Guarantor"),
and Karunyan Xxxxxxxxxxxx, M.D., as agent ("Agent") for the Guarantied Parties,
with reference to the following facts:
R E C I T A L S
A. In order to induce each of the Guarantied Parties to accept the
Subordinate Guaranties for their Subordinated Notes and as a condition thereof,
Guarantor has agreed to enter into this Agreement in order to grant to the
Guarantied Parties a security interest in the Collateral to secure prompt
payment and performance of the Secured Obligations; and
B. Guarantor is materially interested in the financial success of
Purchaser who is the maker of the Subordinated Notes.
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 each of the Subordinated
Guaranties. 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 Guarantor'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 Guarantor, irrespective of whether earned
by performance.
"AGENT" has the meaning assigned to that term in the introduction to
this Agreement.
"AGENT EXPENSES" shall mean: any and all costs or expenses required
to be paid by Guarantor under this Security Agreement which are paid or advanced
by Agent; all costs and expenses of Agent, 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 all costs and expenses of suit incurred or expended by Agent,
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.
"GUARANTOR'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 Guarantor'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 Agent.
"DEPOSIT ACCOUNT" means any demand, time, savings, passbook or like
account now or hereafter maintained by or for the benefit of Guarantor 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 Guarantor, whether or not negotiable,
and includes all other documents which
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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 Guarantor 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 Guarantor'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 Guarantor relating thereto, whether in the
possession and control of Guarantor, or in the possession and control of a third
party for the account of Guarantor.
"FEIN" means Federal Employer Identification Number.
"GENERAL INTANGIBLES" means any and all of Guarantor'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 Guarantor may be entitled;
(h) purchase orders, customer lists, subscriber lists and goodwill;
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(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.
"GUARANTIED PARTIES" means Sinnadurai X. Xxxxxxx, M.D., and Karunyan
Xxxxxxxxxxxx, M.D. "Guarantied Party" means either of them, as appropriate.
"GUARANTY" means one of the Subordinated Guaranties delivered by
Guarantor to one of the Guarantied Parties. "Guaranties" means both of such.
"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 Guarantor or in which Guarantor 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;
(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
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(e) the entire goodwill of or associated with the businesses now or
hereafter conducted by Guarantor 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 Guarantor'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 Guarantor'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 Guarantor 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 Guarantor'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 Guarantor,
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 Guarantor 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
Guarantor 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.
"PURCHASER" means Prospect Medical Group, Inc., a California
professional corporation.
"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.
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"SECURED OBLIGATIONS" shall mean the obligations of Guarantor
described in Section 2 of the Guaranties.
"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.
"SENIOR CREDITOR" means Imperial Bank, a California banking
corporation, or its successors and assigns, and any institution which refinances
Guarantor's obligations to Imperial Bank.
"SUBORDINATED NOTES" means the two Contingent Promissory Notes of even
date herewith, each in the amount of $1,125,000, made by Prospect Medical Group,
Inc., one of which is payable to each of the Guarantied Parties.
"SUBORDINATION AND NOTE CANCELLATION AGREEMENT" has the meaning
ascribed to it in the second paragraph of the legend set forth on the front of
each of the Subordinated Notes.
"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 Agent include reasonable estimates (absent manifest error) by Agent, as
applicable (in the case of quantitative determinations) and reasonable beliefs
(absent manifest error) by Agent, 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. Actions by "Agent" or things received by
"Agent", including the grant of security interest in Section 3 hereof, are done
or received on behalf of the Guaranteed Parties.
3. CREATION OF SECURITY INTEREST. Subject only to prior liens in favor
of Senior Creditor, Guarantor hereby grants to Agent 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. Guarantor acknowledges and affirms that such security interest in
the Collateral has attached to all Collateral without further act on the part of
Agent or Guarantor.
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4. FURTHER ASSURANCES.
4.1 Guarantor shall execute and deliver to Agent concurrently with
Guarantor's execution of this Security Agreement, and from time to time at the
request of Agent, all financing statements, continuation financing statements,
fixture filings, security agreements, chattel mortgages, assignments, and all
other documents that Agent may request, in form satisfactory to Agent, to
perfect and maintain perfected Agent's security interests in the Collateral and
in order to consummate fully all of the transactions contemplated by this
Security Agreement and the Subordinated Notes and the Guaranties. Guarantor
hereby irrevocably makes, constitutes, and appoints Agent as Guarantor's true
and lawful attorney with power to sign the name of Guarantor 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 Guarantor in order to perfect, or continue the perfection of,
Agent's security interests in the Collateral on behalf of the Guarantied
Parties. Guarantor agrees that neither Agent, 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 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 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
GUARANTIES TERMINATED, AND ALL GUARANTOR'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 Subordinated Guaranties, Guarantor will: (i) at
the request of Agent, xxxx conspicuously all of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to Agent,
indicating that the Collateral is subject to the security interest granted
hereby; (ii) at the request of Agent, appear in and defend any action or
proceeding which may affect Guarantor's title to, or the security interest of
Agent in, any of the Collateral; and (iii) upon demand of Agent, allow
inspection of Collateral by Agent or persons designated by Agent 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 Guarantor have been terminated,
Guarantor shall, immediately upon request by Agent, endorse (where appropriate)
and assign the Negotiable Collateral over to Agent, and deliver to Agent actual
physical possession of the Negotiable Collateral to Agent together with any
instruments of transfer or assignment, all in form and substance satisfactory to
Agent, in order to fully perfect the security interest therein of Agent.
4.4 Subject to any prior liens in favor of Senior Creditor, Guarantor
shall cooperate with Agent in obtaining a control agreement in form and
substance satisfactory to Agent with respect to all Deposit Accounts and
Investment Property.
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5. REPRESENTATIONS AND WARRANTIES. In addition to the representations
and warranties of Guarantor set forth in each Guaranty which are incorporated
herein by this reference, Guarantor represents and warrants to Agent that:
5.1 LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL; FEIN.
Guarantor's chief executive office is located at the address set forth in
Schedule 1, and all other locations where Guarantor conducts business or
Collateral is kept are set forth in Schedule 1. Guarantor's FEIN is 00-0000000.
5.2 LOCATIONS OF GUARANTOR'S BOOKS. All locations where Guarantor's
Books are kept, including all equipment necessary for accessing Guarantor's
Books and the names and addresses of all service bureaus, computer or data
processing companies and other persons keeping Guarantor's Books or collecting
Rights to Payment for Guarantor, are set forth in Schedule 1.
5.3 TRADE NAMES AND TRADE STYLES. All trade names and trade styles
under which Guarantor presently conducts its business operations are set forth
in SCHEDULE 1, and, except as set forth in Schedule 1, Guarantor 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. Guarantor 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 Guarantor now has rights, and will create a security
interest which is enforceable against the Collateral in which Guarantor
hereafter acquires rights at the time Guarantor acquires any such rights, and
(ii) Agent, on behalf of the Guarantied Parties, 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 Guarantor 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 Guarantor hereafter
acquires rights at the time Guarantor 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 Agent and financing statements filed in connection with liens in favor
of Senior Creditor, no effective financing statement naming Guarantor 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.
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(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 Guarantor'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) Guarantor has not assigned any of its rights under the
Rights to Payment other than to Senior Creditor;
(e) all statements made, all unpaid balances and all other
information in Guarantor'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) Guarantor 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 Guarantor, nor has any Inventory
been consigned to Guarantor or consigned by Guarantor to any person or is held
by Guarantor for any person under any "xxxx and hold" or other arrangement.
5.9 INTELLECTUAL PROPERTY.
(a) except as set forth in Schedule 1, Guarantor (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 Guarantor's knowledge, each of the patents is valid and enforceable and
Guarantor has notified Agent 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 Guarantor's knowledge, no infringement or
unauthorized use presently is being made of any Intellectual Property Collateral
by any person;
(e) Guarantor 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 Guarantor has not, does not and
will not infringe or violate any right, privilege or license agreement of or
with any other person; and
(f) Guarantor 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 Guarantor has supplied Agent
with all information and documentation necessary to make all fixture filings
required to perfect and protect the priority of Agent'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 Guarantor 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 Guarantor set forth in the
Guaranties which are incorporated herein by this reference, Guarantor agrees
that, until the indefeasible payment, performance and satisfaction in full of
the Secured Obligations:
6.1 DEFENSE OF COLLATERAL. Guarantor shall appear in and defend any
action, suit or proceeding which may affect its title to or right or interest
in, or Agent's right or interest in, the Collateral.
6.2 PRESERVATION OF COLLATERAL. Guarantor 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. Guarantor shall comply with all laws,
regulations and ordinances, and all policies of insurance, relating to the
possession, operation, maintenance and control of the Collateral.
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6.4 LOCATION OF GUARANTOR'S BOOKS AND CHIEF EXECUTIVE OFFICE.
Guarantor shall: (i) keep all Guarantor's Books at the locations set forth in
Schedule 1; and (ii) maintain the location of Guarantor's chief executive office
or principal place of business at the location set forth in Schedule 1;
provided, however, that Guarantor may amend Schedule 1; so long as (a) such
amendment occurs by written notice to Agent not less than 30 days prior to the
date on which the location of Guarantor's Books or Guarantor's chief executive
office or principal place of business is changed, and (b) at the time of such
written notification, Guarantor executes and delivers any financing statement
amendments or fixture filing amendments necessary to perfect or continue
perfected Agent's security interest in the Collateral and also obtains for Agent
such duly executed Collateral Access Agreement as Agent shall require with
respect to such new location.
6.5 LOCATION OF COLLATERAL. Guarantor shall keep the Inventory and
Equipment only at the locations identified on Schedule 1; PROVIDED, HOWEVER,
that Guarantor may amend Schedule 1 so long as (i) such amendment occurs by
written notice to Agent 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, Guarantor executes and delivers any financing statements or
fixture filings perfect and continue perfected Agent's security interests in
such assets and also obtains for Agent such duly executed Collateral Access
Agreement as Agent shall require with respect to such new location.
6.6 CHANGE IN NAME, TRADE NAME, TRADE STYLE OR FEIN. Guarantor 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
Guarantor may amend Schedule 1 so long as (i) such amendment occurs by written
notice to Agent 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, Guarantor executes and delivers any financing statement
amendments or fixture filing amendment necessary to continue perfected Agent's
security interests for the benefit of Guarantied Parties in the Collateral.
6.7 MAINTENANCE OF RECORDS. Guarantor shall keep separate, accurate
and complete Guarantor's Books, disclosing Agent's security interest for the
benefit of Guarantied Parties hereunder.
6.8 DISPOSITION OF COLLATERAL. Guarantor shall not surrender or lose
possession of (other than to Senior Creditor or Agent), 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. Guarantor shall keep the Collateral free of all liens
except liens in favor of Senior Creditor and Agent for the benefit of Guarantied
Parties.
6.10 LEASED PREMISES. At Agent's request, Guarantor shall obtain from
each person from whom Guarantor leases any premises at which any Collateral is
at any time present, such Collateral Access Agreements as Agent may require.
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6.11 RIGHTS TO PAYMENT. Guarantor 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 Agent;
(c) if, to the knowledge of Guarantor, 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 Guarantor or
otherwise), disclose such fact fully to Agent in Guarantor's Books relating to
such Account or other Right to Payment and in connection with any report
furnished by Guarantor to Agent relating to such Right to Payment;
(d) furnish to Agent such information and reports regarding the
Rights to Payment as Agent may request, and upon request of Agent make such
demands and requests for information and reports as Guarantor 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
Agent shall require.
6.12 INVENTORY. Guarantor shall:
(a) at such times as Agent shall request, prepare and deliver to
Agent periodic reports pertaining to the Inventory, in form and substance
satisfactory to Agent;
(b) upon the request of Agent, take a physical listing of the
Inventory and promptly deliver a copy of such physical listing to Agent;
(c) not store any Inventory with a bailee, warehouse or similar
Person or on premises leased to Guarantor without obtaining for Agent such
Collateral Access Agreements as Agent 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 Agent prior written notice thereof.
6.13 EQUIPMENT. Guarantor shall, upon Agent's request, deliver to
Agent a report of each item of Equipment, in form and substance satisfactory to
Agent.
6.14 INTELLECTUAL PROPERTY COLLATERAL. Guarantor shall:
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(a) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral without in
each case giving Agent 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 Agent notice of any rights Guarantor 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.
6.15 COPIES OF INFORMATION COLLATERAL ACCESS AGREEMENTS. Guarantor
shall provide to Agent for the benefit of Guarantied Parties 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 Agent, or its 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. Guarantor 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 Agent after the
occurrence of an Event of Default, subject to Senior Creditor's rights, all
remittances received by Guarantor shall be held in trust for Agent, and, in
accordance with Agent's instructions, remitted to Agent or deposited to an
account designated by Agent in the form received (with any necessary
endorsements or instruments of assignment or transfer).
8. EVENTS OF DEFAULT. The occurrence of any breach by Guarantor of the
Subordinated Guaranties 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 and Note Cancellation Agreement,
Agent, without notice or demand, may do any one or more of the following, all of
which are authorized by Guarantor:
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(a) settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Agent considers advisable, and in such
cases, Agent will credit the Secured Obligations with only the net amounts
received by Agent in payment of such disputed Accounts after deducting all Agent
Expenses incurred or expended in connection therewith;
(b) cause Guarantor to hold all returned Inventory in trust for
Agent, segregate all returned Inventory from all other property of Guarantor or
in Guarantor's possession and conspicuously label said returned Inventory as the
property of Agent;
(c) without notice to or demand upon Guarantor or any guarantor,
make such payments and do such acts as Agent considers necessary or unable to
protect its security interests in the Collateral. Guarantor agrees to assemble
the Collateral if Agent so requires, and to make the Collateral available to
Agent as Agent may designate. Guarantor authorizes Agent 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 Agent's determination appears to conflict
with its security interests and to pay all expenses incurred in connection
therewith. With respect to any of Guarantor's owned or leased premises,
Guarantor hereby grants Agent 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 Agent'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. Agent is hereby granted a license or other right to
use, without charge, Guarantor'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 Guarantor's rights under all licenses and all franchise agreements shall
inure to Agent'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 Guarantor's premises) as Agent
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(f) agent shall give notice of the disposition of the Collateral
as follows:
(i) agent shall give Guarantor and each holder of a
security interest in the Collateral who has filed with Agent 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;
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(ii) the notice shall be personally delivered or mailed,
postage prepaid, to Guarantor as provided in SECTION 15 of the Guaranty, 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
Guarantor claiming an interest in the Collateral shall be sent to such addresses
as they have furnished to Agent;
(iii) if the sale is to be a public sale, Agent 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) agent may credit bid and purchase at any public sale; and
(h) any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Guarantor. Any excess
will be returned, without interest and subject to the rights of third persons,
by Agent to Guarantor.
9.2 Upon the exercise by Agent 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,
Guarantor agrees to execute and deliver, or will cause the execution and
delivery of, all applications, certificates, instruments, assignments, and other
documents and papers that Agent 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 Agent under this Security Agreement,
the Guaranty, and all other agreements contemplated hereby and thereby shall be
cumulative. Agent shall have all other rights and remedies not inconsistent
herewith as provided under the UCC, by law, or in equity. No exercise by Agent
of any one right or remedy shall be deemed an election of remedies, and no
waiver by Agent of any default on Guarantor's part shall be deemed a continuing
waiver of any further defaults. No delay by Agent shall constitute a waiver,
election or acquiescence with respect to any right or remedy.
10. AGENT NOT LIABLE. So long as Agent complies with the obligations, if
any, imposed by Section 9207 of the Code, Agent 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 Guarantied Parties under the Subordinated Notes and Guaranties are
no longer subject to any right on the part of any person, including Purchaser or
Guarantor, Purchaser or Guarantor as a
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debtor in possession, or any trustee (whether appointed under the Bankruptcy
Code or otherwise) of Purchaser or Guarantor or Purchaser's or Guarantor'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 Agent 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 15 of the Guaranties.
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 Guarantor and
Agent; PROVIDED, HOWEVER, that Guarantor may not assign this Security Agreement
nor delegate any of its duties hereunder without Agent's prior written consent
and any prohibited assignment or delegation shall be absolutely void. No
consent by Agent to an assignment by Guarantor shall release Guarantor 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 Agent or Guarantor, 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 Guaranties to which Guarantor 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 Agent.
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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.
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.
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(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.
(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
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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/ Karunyan Xxxxxxxxxxxx
------------------------------
Karunyan Xxxxxxxxxxxx, M.D.
as Agent for Guarantied Parties
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