Exhibit
10.81


 


COLLATERAL SUBSTITUTION AGREEMENT


 


 


THIS COLLATERAL SUBSTITUTION AGREEMENT (the
“Collateral Substitution Agreement”) is made and dated as of the 25th
day of January, 2002, by and among PROSPECT MEDICAL GROUP, INC., a California
professional corporation (“PMG”), PROSPECT MEDICAL HOLDINGS, INC., a Delaware
corporation (“PMH”), and FOOTHILL CITY CENTER, LTD., A CALIFORNIA LIMITED
PARTNERSHIP (“FCC”).


 


RECITALS


 


 


WHEREAS, as of September 30, 2001, PMH is indebted to
PMG in the amount of Ten Million Eighty-Six Thousand Six Hundred Nine Dollars
($10,086,609) (the “Debt”), which PMG has the right to declare due and payable
at any time;


 


WHEREAS, pursuant to the terms and conditions of a
Forbearance Agreement executed simultaneously herewith (the “Forbearance
Agreement”), PMG is willing to forbear declaring due and payable and collecting
the Debt in exchange for obtaining a Continuing Guaranty of Guarantor with
respect to $4,250,000 of the Debt and a deed of trust dated as of the same date
as the Continuing Guaranty (the “Deed of Trust”) covering certain real property
described in the Deed of Trust (“Property”) in order to secure Guarantor’s
obligations under the Continuing Guaranty; and


 


WHEREAS, in consideration of PMG’s and PMH’s covenants
contained in this Collateral Substitution Agreement executed simultaneously
with the Continuing Guaranty and the Deed of Trust (the “Collateral
Substitution Agreement”), Guarantor has agreed to execute the Continuing
Guaranty and the Deed of Trust.


 


NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth in the foregoing recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:


 


AGREEMENT


 


1.                                       Agreement
to Substitute Collateral.  Subject
to the terms and conditions set forth herein, the parties hereto agree that:
(a) to the extent the Debt is repaid by PMH to PMG, thereby decreasing the
amount of intercompany indebtedness which would be required to be secured in
order to enable PMG to meet the California Department of Managed Care’s
tangible net equity requirements, PMG shall amend the Continuing Guaranty to
reduce the amount of the Debt secured thereby, until such amount shall be
reduced to zero, prior to PMG releasing any other collateral securing the Debt
and (b) to the extent that other assets of PMH satisfying the California
Department of Managed Care’s tangible net equity requirements should become
available to collateralize the Debt, PMG agrees to substitute, and PMH agrees
to grant a security interest in and lien on, such other assets having,
collectively, a value equal to up to the amount of


 

















 


the Debt secured by the
Continuing Guaranty, and PMG further agrees to revise the Continuing Guaranty
to reflect the reduction of the amount of the Debt secured thereby.  Such reductions in the amount of the
Continuing Guaranty and concurrent substitutions of collateral shall continue
until the amount of the Continuing Guaranty is reduced to zero.  At such time as the Continuing Guaranty is
reduced to zero, upon the request of FCC, PMG shall execute any agreement or
instrument reasonably requested by FCC to terminate the Deed of Trust.  Without limiting the generality of the
foregoing provisions of this Section 1, PMG agrees to review the amount of debt
secured by the Continuing Guaranty on an annual basis, commencing on the first
anniversary of the date of this Agreement appearing in the first paragraph
hereof, and to amend the Continuing Guaranty as may be required by the
provisions of this Section 1.


 


2.                                       Conditions
to Substitution of Collateral. 
Notwithstanding any provision of this Agreement to the contrary, PMG
shall not be obligated to reduce the amount of the Continuing Guaranty or
substitute other collateral therefor, pursuant to Section 1 hereof, if PMH is
prohibited or restricted from making such reduction and/or substitution under
applicable law or PMH’s existing agreements, including without limitation,
PMH’s agreements with Comerica Bank.


 


3.                                       Effective
Date.  This Collateral Substitution
Agreement shall be deemed effective as of September 30, 2001.


 


4.                                       Miscellaneous
Provisions.


 


(a)                                  Entire
Agreement.  This Collateral
Substitution Agreement embodies the entire agreement and understanding between
the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.


 


(b)                                 Governing
Law.  This Collateral Substitution
Agreement shall be governed by and construed in accordance with the internal
laws of the State of California without giving effect to its choice of law
rules.


 


(c)                                  Counterparts.  This Collateral Substitution Agreement may
be executed in any number of counterparts, all of which together shall
constitute one agreement.


 


(d)                                 Severability.  The illegality or unenforceability of any
provision of this Collateral Substitution Agreement or any instrument or
agreement required hereunder or thereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions hereof or
thereof.


 


2

















 


IN WITNESS WHEREOF, the parties hereto have caused
this Collateral Substitution Agreement to be executed as of the day and year
first above written.


 


	
   

  	
  PROSPECT MEDICAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R. Stewart Kahn

  	
   

  
	
   

  	
  Its:

  	
  Executive Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT MEDICAL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jacob Y. Terner

  	
   

  
	
   

  	
  Its:

  	
  Sole Shareholder

  	
   

  



 


 


BY AFFIXING ITS
SIGNATURE HERETO, FCC REPRESENTS THAT IT AGREES TO THE TERMS OF THIS COLLATERAL
SUBSTITUTION AGREEMENT AND THAT IT HAS HAD AN OPPORTUNITY TO CONSULT WITH ITS
OWN LEGAL COUNSEL REGARDING THE TERMS OF THIS COLLATERAL SUBSTITUTION
AGREEMENT, THE FORBEARANCE AGREEMENT AND THE DEED OF TRUST, AND IS NOT RELYING
ON MILLER & HOLGUIN, LEGAL COUNSEL TO PROSPECT MEDICAL GROUP, INC., FOR
LEGAL ADVICE IN CONNECTION WITH SUCH DOCUMENTS.


 


	
   

  	
  FOOTHILL CITY CENTER,
  LTD.,

  
	
   

  	
  A CALIFORNIA LIMITED
  PARTNERSHIP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  DUTTON & ASSOCIATES

  
	
   

  	
   

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ted W. Dutton

  	
   

  
	
   

  	
   

  	
   

  	
  Ted W. Dutton

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jacob Y. Terner

  	
   

  
	
   

  	
   

  	
  Jacob Y. Terner

  
	
   

  	
   

  	
  General Partner

  
						



 


3