SECURITY AGREEMENT
(PHYSICIAN GROUP)
This SECURITY AGREEMENT, dated as of July 14, 1997, is entered into
between SANTA ▇▇▇/TUSTIN PHYSICIANS GROUP, INC., a California professional
medical corporation ("PHYSICIAN GROUP") and PROSPECT MEDICAL SYSTEMS, INC., a
Delaware corporation ("MANAGER"), with reference to the following facts:
R E C I T A L S
A. Manager and Physician Group have entered into that certain
Management Services Agreement, effective July 14, 1997 (the "MANAGEMENT
AGREEMENT"), pursuant to which Manager is providing certain management services
to Physician Group;
B. Physician Group has agreed to enter into this Security Agreement
in order to grant Manager a first priority security interest in the Collateral
(as hereinafter defined) to secure prompt payment and performance of its
obligations under the Management Agreement.
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 Management
Agreement. In addition, as used herein, the following terms shall have the
following meanings:
"ACCOUNT DEBTOR" means any person or entity who is or who may
become obligated with respect to, or on account of, an Account.
"ACCOUNTS" means any and all of Physician Group's presently
existing and hereafter arising accounts and rights to payment arising out of the
sale or lease of goods or the rendition of services by Physician Group,
irrespective of whether earned by performance, and all Instruments evidencing
the same or arising in connection therewith.
"APPLICABLE LAW" means all applicable provisions of
constitutions, statutes, rules, regulations and orders of all government bodies
and all orders and decrees of all courts, tribunals and arbitrators.
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"BANKRUPTCY CODE" means The Bankruptcy Reform Act of 1978 (Pub.
L. No. 95-598; 11 U.S.C.), as amended or supplemented from time to time, or any
successor statute, and any and all rules and regulations issued or promulgated
in connection therewith.
"CODE" means the California Uniform Commercial Code. Any and all
terms used in this Security Agreement which are defined in the Code shall be
construed and defined in accordance with the meaning and definition ascribed to
such terms under the Code, unless otherwise defined herein.
"COLLATERAL" means any and all of the Accounts and Physician
Group'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, money, or other tangible or intangible
property, resulting from the sale or other disposition of the Accounts, or any
portion thereof or interest therein, and the substitutions, replacements,
additions, accessions, products and Proceeds thereof.
"EXPENSES" means any and all costs or expenses required to be
paid by Physician Group under this Security Agreement which are paid or advanced
by Manager; all costs and expenses of Manager, 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 Manager,
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.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or other
governmental department, commission, board, bureau, agency, central bank, court,
tribunal or other instrumentality or authority or subdivision thereof, domestic
or foreign, exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HEALTH CARE LAW" means any Applicable Law regulating the
acquisition, construction, operation, maintenance or management of a healthcare
practice, facility, provider or payor.
"INSTRUMENTS" means any and all negotiable instruments,
certificated securities and every other writing which evidences a right to the
payment of money, in each case whether now existing or hereafter acquired.
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"LIEN" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement or other preferential
arrangement, charge or encumbrance (including, any conditional sale or other
title retention agreement, or finance lease) of any kind.
"PHYSICIAN GROUP'S BOOKS" means any and all presently existing
and hereafter acquired or created books and records of Physician Group
(excluding patient medical records and peer review records), including all
records (including maintenance and warranty records), ledgers, computer
programs, disc or tape files, printouts, runs, and other computer prepared
information indicating, summarizing, or evidencing the Accounts.
"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 Physician
Group, 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 Physician Group 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 Physician Group 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 or entity 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
or entity, any and all other tangible or intangible property received upon the
sale or disposition of Collateral, and all proceeds of proceeds.
"SECURED OBLIGATIONS" shall mean any and all debts, liabilities,
obligations, or undertakings owing by Physician Group to Manager arising under,
advanced pursuant to, or evidenced by the Management Agreement and this Security
Agreement, whether direct or indirect, absolute or contingent, matured or
unmatured, due or to become due, voluntary or involuntary, whether now existing
or hereafter arising.
"SECURITY AGREEMENT" shall mean this Security Agreement, any
concurrent or subsequent riders, exhibits or schedules to this Security
Agreement, and any extensions, supplements, amendments, or modifications to or
in connection with this Security Agreement, or to any such riders, exhibits or
schedules.
2. CONSTRUCTION. Unless the context of this Security Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the part includes the whole,
"including" is not limiting, and "or" has the inclusive meaning represented
by the phrase "and/or." References in this Security Agreement to
"determination" by Manager include reasonable estimates (absent manifest
error) by Manager, as applicable (in the case of quantitative determinations)
and reasonable beliefs (absent manifest error) by Manager, as applicable (in
the case of qualitative deter-
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minations). 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. Physician Group hereby grants to
Manager 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. Physician Group acknowledges and
affirms that such security interest in the Collateral has attached to all
Collateral without further act on the part of Manager or Physician Group.
4. FURTHER ASSURANCES.
4.1 FURTHER ASSURANCES. Physician Group shall execute and
deliver to Manager concurrently with Physician Group's execution of this
Security Agreement, and from time to time at the request of Manager, all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, assignments, and all other documents
that Manager may request, in form satisfactory to Manager, to perfect and
maintain perfected Manager's security interests in the Collateral and in order
to consummate fully all of the transactions contemplated by this Security
Agreement and the Management Agreement.
5. REPRESENTATIONS AND WARRANTIES. Physician Group represents and
warrants to Manager that:
5.1 TRADE NAMES AND TRADE STYLES Physician Group presently does
not conduct its business operations under any trade names or trade styles.
5.2 OWNERSHIP OF COLLATERAL. Physician Group is and shall
continue to be the sole and complete owner of the Collateral, free from any
Lien, other than the Lien granted to Manager hereunder.
5.3 ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. This
Agreement (i) creates a security interest which is enforceable against the
Collateral in which Physician Group now has rights and will create a security
interest which is enforceable against the Collateral in which Physician Group
hereafter acquires rights at the time Physician Group acquires any such rights,
and (ii) Manager has a perfected security interest (to the fullest extent
perfection can be obtained by filing, notification to third parties or
possession) and a first priority security interest in the Collateral in which
Physician Group now has rights, and will have a perfected and first priority
security interest in the Collateral in which Physician Group hereafter acquires
rights at the time Physician Group acquires any such rights, in each case
securing the payment and performance of the Secured Obligations.
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5.4 OTHER FINANCING STATEMENTS. Other than financing statements
in favor of Manager, no effective financing statement naming Physician Group 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.
6. COVENANTS. In addition to the covenants of Physician Group set
forth in the Management Agreement which are incorporated herein by this
reference, Physician Group agrees that from the date of this Security Agreement
and thereafter until the indefeasible payment, performance and satisfaction in
full of the Secured Obligations, and all of Physician Group's obligations under
the Management Agreement to Manager have been terminated:
6.1 DEFENSE OF COLLATERAL. Physician Group shall appear in and
defend any action, suit or proceeding which may affect its title to or right or
interest in, or Manager's right or interest in, the Collateral.
6.2 PRESERVATION OF COLLATERAL. Physician Group shall do and
perform all acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.
6.3 CHANGE IN NAME; ADOPTION OF TRADE NAME OR TRADE STYLE.
Physician Group shall give Manager at least 30 days' prior written notice of any
changes in its name, or of the adoption of any trade name or trade style.
6.4 MAINTENANCE OF RECORDS. Physician Group shall keep
separate, accurate and complete Physician Group's Books, disclosing Manager's
security interest hereunder.
6.5 DISPOSITION OF COLLATERAL. Physician Group shall not
surrender or lose possession of (other than to Manager), sell, lease, rent, or
otherwise dispose of or transfer any of the Collateral or any right or interest
therein.
6.6 LIENS. Physician Group shall keep the Collateral free of
all Liens, other than the Lien granted to Manager hereunder.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default ("Event of Default") under this Security
Agreement:
7.1 BREACH OF MANAGEMENT AGREEMENT. Physician Group shall
breach, or be in default of, any of its agreements, covenants and obligations
under the Management Agreement;
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7.2 BREACH OF SECURITY AGREEMENT. Physician Group shall breach,
or be in default of, any of its agreements, covenants and obligations under this
Security Agreement; or
7.3 BREACH OF REPRESENTATIONS OR WARRANTIES. Any representation
or warranty made by Physician Group in this Security Agreement shall have been
untrue in any material respect when made.
8. RIGHTS AND REMEDIES, ETC.
8.1 RIGHTS AND REMEDIES. During the continuance of an Event of
Default, Manager, without notice or demand, may do any one or more of the
following, all of which are authorized by Physician Group:
(a) Make such payments and do such acts as it considers
necessary or reasonable to protect Manager's security interest in the
Collateral. Physician Group agrees to assemble and make available any or all of
the Collateral if Manager so requires. Physician Group authorizes Manager to
enter the premises where the Collateral is located, take and maintain possession
of the Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or lien which, in the opinion of the
Manager, appears to be prior or superior to Manager's security interest, and to
pay all costs and expenses incurred in connection therewith;
(b) 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 Physician Group's premises)
as is commercially reasonable, and apply any proceeds of any sale or other
disposition of the Collateral in the order provided in Section 9504 of the Code,
including the payment of Expenses. It is not necessary that the Collateral be
present at any such sale;
(c) Without constituting a retention of collateral in
satisfaction of indebtedness as provided for in Section 9505 of the Code, notify
account debtors and other obligors of Physician Group of Manager's security
interests in the Collateral, and proceed to collect the same and apply the net
cash proceeds therefrom to the Secured Obligations;
(d) Manager shall give notice of any disposition of the
Collateral as follows:
(i) Manager shall give Physician Group and each
holder of a security interest in the Collateral who has filed with Manager a
written request for notice, a written notice stating the time and place of a
public sale, or, if the disposition
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is to be either a private sale or some other disposition that is not a public
sale, the time on or after which the private sale or other disposition is to be
made;
(ii) The notice described in the immediately
preceding paragraph shall be delivered to Physician Group as provided in Section
8.3 of the Management Agreement at least five (5) calendar days before the date
fixed for a sale. Notice to persons other than Physician Group claiming an
interest in the Collateral shall be sent to such addresses as such persons have
furnished to Manager prior to the date of such notice;
(iii) If the disposition is to be a public sale,
Manager shall also give notice of the time and place of said sale by publishing
a notice at least five (5) calendar days before the date of the sale in a
newspaper of general circulation, if one exists, in the county in which the sale
is to be held;
(e) Manager may, in its own name, or in the name of a
designee or nominee, credit bid and purchase at any public sale;
(f) Physician Group shall pay all Expenses; and
(g) Any portion of the Secured Obligations which remains
unpaid after disposition of the Collateral as provided above shall be paid
immediately by Physician Group. Any excess which exists after disposition of
the Collateral and payment in full of the Secured Obligations shall be returned
promptly, without interest and subject to the rights of third persons, to
Physician Group by Manager.
8.2 FURTHER DOCUMENTATION. Upon the exercise by Manager 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, Physician Group agrees to execute and deliver, or
will cause the execution and delivery of, all applications, certificates,
instruments, assignments, and other documents and papers that Manager or any
purchaser of the Collateral may be required to obtain for such governmental
consent, approval, registration, qualification, or authorization.
8.3 CUMULATIVE REMEDIES; WAIVERS. The rights and remedies of
Manager under this Security Agreement, the Management Agreement, and all other
agreements contemplated hereby and thereby shall be cumulative. Manager shall
have all other rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Manager of any one right or
remedy shall be deemed an election of remedies, and no waiver by Manager of any
default on Physician Group's part shall be deemed a continuing waiver of any
further defaults. No delay by Manager shall constitute a waiver, election or
acquiescence with respect to any right or remedy.
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9. 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 set
forth in Section 14.6 of the Management Agreement.
10. GENERAL PROVISIONS.
10.1 SUCCESSORS AND ASSIGNS. This Security Agreement shall bind
and inure to the benefit of the respective successors and assigns of Physician
Group and Manager; PROVIDED, HOWEVER, that Physician Group may not assign this
Security Agreement nor delegate any of its duties hereunder without Manager's
prior written consent and any prohibited assignment or delegation shall be
absolutely void. No consent by Manager to an assignment by Physician Group
shall release Physician Group from the Secured Obligations. Manager may assign
this Security Agreement and delegate its duties hereunder, if any, from time to
time to its lender or lenders or to its parent's lender or lenders, without
prior notice to, or the consent of, Physician Group, and Physician Group agrees
to recognize such lender or lenders as Manager's assignee under this Security
Agreement.
10.2 NO PRESUMPTION AGAINST ANY PARTY. Neither this Security
Agreement nor any uncertainty or ambiguity herein shall be construed or resolved
against Manager or Physician Group, 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.
10.3 AMENDMENTS AND WAIVERS. Any provision of this Security
Agreement or any of the Loan Documents to which Physician Group 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.
10.4 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 Manager.
11. 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.
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12. NO VIOLATION OF APPLICABLE LAW. To the extent that any lien or
security interest on any Asset(s) granted by Physician Group herein violates any
applicable Health Care Law, the grant of such lien or security interest on such
Asset(s) shall be automatically null and void; provided however, that to the
extent such lien or security interest at any time hereafter no longer violates
any applicable Health Care Law, then such lien or security interest shall
automatically and without any further action attach and become fully effective
at that time (giving effect to any retroactive effect to any change in
applicable law or regulation); and, provided further, that the liens or security
interests on other Asset(s) granted by Physician Group herein that do not
violate any applicable Health Care Law shall remain at all times in full force
and effect.
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IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date first set forth above.
SANTA ▇▇▇/TUSTIN PHYSICIANS GROUP, INC.
a California professional corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Title: Secretary
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PROSPECT MEDICAL SYSTEMS, INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
------------------------------------
Title: CEO
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