Document:

Exhibit
10.36

 

COLLATERAL
ASSIGNMENT OF TRANSACTION DOCUMENTS

 

THIS COLLATERAL ASSIGNMENT OF TRANSACTION DOCUMENTS (this “Assignment”)  has been executed and delivered as of
October 1, 2003, by and between PROSPECT MEDICAL SYSTEMS, INC., a Delaware
corporation (“Assignor”), and COMERICA BANK, a Michigan banking
corporation (“Bank”), with reference to the following facts:

 

RECITALS

 

A.                                            Assignor is a party to certain transaction
documents pursuant to which, among other things, Assignor acquired certain
rights with respect to Prospect Professional Care Medical Group, a California
professional corporation (“Physician Group”), and provides management
services to Physician Group.

 

B.                                              Assignor has previously executed and
delivered that certain Continuing Guaranty, dated as of July 3, 1997, in
favor of Imperial Bank, predecessor-by-merger to Bank (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the “Guaranty”)
pursuant to which Assignor guarantees the Guaranteed Obligations (as defined in
the Guaranty), including, without limitation, all obligations, indebtedness and
liabilities owed by Prospect Medical Holdings, Inc., a Delaware corporation (“Borrower”)
to Bank under that certain Amended and Restated Revolving Credit Agreement,
dated as of July 3, 1999 (as amended to date and as the same may be
further amended, restated, supplemented or otherwise modified from time to
time, the “Loan Agreement”).

 

C.                                       Assignor has executed and delivered that
certain Security Agreement, dated as of even date with the Guaranty (“Security
Agreement”), in order to secure the Guaranteed Obligations.

 

D.                                      Assignor has agreed to execute and deliver
this Assignment to Bank in order to supplement the terms of the Security
Agreement with respect to the Transaction Documents (as hereinafter defined).

 

E.                                        Assignor is a wholly-owned subsidiary of
Borrower which will directly and materially benefit from the Loans made by Bank
to Borrower under the Loan Agreement, and Assignor acknowledges that Bank would
not enter into the Loan Agreement absent Assignor’s agreements under the
Guaranty, the Security Agreement and hereunder.

 

AGREEMENT

 

In consideration of the premises and the mutual agreements herein set
forth, Assignor and Bank hereby agree as follows:

 

1.                                       Defined Terms.  All
initially capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Guaranty.

 

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2.                                       Assignment. As additional security for the Guaranteed Obligations, Assignor hereby
collaterally assigns and transfers to Bank, and acknowledges that pursuant to
the Security Agreement Assignor has granted to Bank a security interest in:

 

2.1                                 Transaction Documents. All of Assignor’s right, title and interest
in and to the following documents (collectively, the “Transaction Documents”):

 

(a)                                        Management Services Agreement, dated as of
October 1, 2003, executed by and between Assignor and Physician Group;

 

(b)                                       Assignable Option Agreement, dated as of
October 1, 2003, by and among Assignor, Physician Group and Prospect
Medical Group, Inc.; and

 

(c)                                        Security Agreement, dated as of
October 1, 2003, executed by and between Assignor and Physician Group,
together with the UCC-1 Financing Statement with respect thereto (“Physician
Group Security Agreement”).

 

2.2                                 Rights and Remedies. All of the rights, benefits, remedies,
privileges and claims of Assignor with respect to the Transaction Documents
(collectively, the “Rights and Remedies”), including, without
limitation, (i) all rights to monies or payments owing to Assignor under the
Transaction Documents, and any and all security therefor and for all other
obligations owing to Assignor thereunder, (ii) any right that Assignor may have
to indemnification under the Transaction Documents, (iii) all Rights and
Remedies of Assignor with respect to any breach of the representations,
warranties and covenants set forth in the Purchase Agreement, and (iv) the
proceeds thereof (the Transaction Documents and the Rights and Remedies are
collectively referred to herein as, the “Collateral”).

 

3.                                     Right and Remedies Generally. Prior to the occurrence of a breach or
default of any of the agreements, covenants and obligations of Assignor under
the Guaranty (a “Default”), Assignor will enforce all of its Rights and
Remedies diligently and in good faith. Effective from and after the occurrence
of a Default, Assignor hereby irrevocably authorizes and empowers Bank, in
Bank’s own discretion, to assert as Bank may deem proper, either directly or on
behalf of Assignor, any of the Rights and Remedies which Assignor may from time
to time have under the Transaction Documents, and to receive and collect all
damages, awards and other monies resulting therefrom and to apply the same on
account of any of the Guaranteed Obligations.

 

4.                                     Further Assurances. Assignor shall execute and deliver to Bank
concurrently with Assignor’s execution of this Assignment, and from time to
time at the request of Bank, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages,
assignments, and all other documents that Bank may request, in form
satisfactory to Bank, to perfect and maintain perfected Bank’s security
interests in the Collateral and in order to consummate fully all of the
transactions contemplated by this Assignment.

 

5.                                     Transaction Documents.  
Concurrent herewith, Assignor is delivering to Bank certified copies of
the Transaction Documents.

 

6.                                     Attorney-In-Fact. 
Assignor hereby irrevocably makes, constitutes, and appoints Bank (and
Bank’s officers, employees, or agents) as Assignor’s true and lawful agent and

 

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attorney-in-fact
for the purposes of enabling Bank or its agent(s) after the occurrence of a
Default to (a) assert such Rights and Remedies and to collect such damages,
awards and other monies and to apply them in the manner set forth hereinabove,
and (b) to sign the name of Assignor on any documents which need to be
executed, recorded, or filed, and to do any and all things necessary in the
name and on behalf of Assignor in order to protect Bank’s interests in the
Transaction Documents. Assignor agrees that neither Bank, nor any of its
designers or attorneys-in-fact, will be liable for any act of commission or
omission, or for any error of judgment or mistake of fact or law with respect
to the exercise of the power of attorney granted under this Section 6,
other than as a result of its or their gross negligence or willful misconduct.
The power of attorney granted under this Section 6 is coupled with an
interest and shall be irrevocable until all of the Guaranteed Obligations have
been paid in full, the Guaranty terminated, and Assignor’s duties under this
Assignment have been discharged in full.

 

7.                                      Modification of Rights and Remedies. Assignor shall keep Bank informed of all
circumstances bearing upon the Rights and Remedies and shall immediately
provide Bank with copies of any notices delivered to Assignor in connection
with the Transaction Documents. Assignor shall also provide Bank with a copy of
any notice sent by Assignor in connection with the Transaction Documents,
concurrently with the sending of any such notice. Assignor shall not waive,
amend, alter or modify any of the Rights and Remedies in any material respect
without the prior written consent of Bank.  
Assignor shall not, without Bank’s prior written consent, amend, alter,
modify or terminate any of the Transaction Documents, or waive any of the
provisions thereof, or do or permit any act in contravention thereof.

 

8.                                      Assignor to Remain Liable. 
Notwithstanding the foregoing, Assignor expressly acknowledges and
agrees that it shall remain liable under the Transaction Documents to observe
and perform all of the conditions and obligations in the Transaction Documents
which Assignor is bound to observe and perform, and that neither this
Assignment, nor any action taken pursuant hereto, shall cause Bank to be under
any obligation or liability in any respect whatsoever to observe or perform any
of the representations, warranties, conditions, covenants, agreements or terms
of the Transaction Documents.

 

9.                                      Counterparts; Effectiveness. This Assignment may be executed in any
number of counterparts, each of which, when executed and delivered, shall be
deemed to be an original. All of such counterparts, taken together, shall
constitute but one and the same agreement.  
This Assignment shall become effective upon the execution of a
counterpart of this Assignment by each of the parties hereto.

 

10.                                Notices. All notices, requests and other communications to any party hereunder
shall be sent in accordance with Section 15 of the Guaranty.

 

11.                                Modifications and Amendments. This Assignment shall not be changed orally
but shall be changed only by agreement in writing signed by Assignor and
Bank.  No course of dealing between the
parties, no usage of trade and no parole or extrinsic evidence of any nature
shall be used to supplement or modify any of the terms or provisions of this Assignment.

 

12.                                Severability. If any provision of this Assignment is held
to be illegal, invalid or unenforceable under present or future laws, the
legality, validity and enforceability of the

 

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remaining
provisions of this Assignment shall not be affected thereby, and this
Assignment shall be liberally construed so as to carry out the intent of the
parties to it.

 

13.                                           Governing Law; Successors and Assigns: Entire
Agreement. This Assignment
(a) shall be governed and construed according to the laws of the State of
California, without regard to principles of conflicts of law; (b) shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; and (c) embodies the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements, consents and understandings relating to such
subject matter.

 

14.                                         Waiver of Jury Trial.  EACH OF ASSIGNOR AND THE BANK ACKNOWLEDGES THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT.

 

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EXECUTED as of the date first above written.

 

	
   

  	
  “Assignor”

  
	
   

  	
   

  
	
   

  	
  PROSPECT MEDICAL SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R. Stewart Kahn

  	
   

  
	
   

  	
  Name:

  	
  R.
  Stewart Kahn,

  
	
   

  	
  Title:

  	
  Executive
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “Bank”

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Name:

  	
  [ILLEGIBLE]

  
	
   

  	
  Title:

  	
  V.P.

  
						

 

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CONSENT TO
ASSIGNMENT

 

Each of the undersigned acknowledges the terms of the above Assignment,
consents to the assignment by Assignor to Bank of the transaction documents
identified in Section 2 of the Assignment (the “Transaction Documents”)
which it is a party, and agrees to recognize Bank as Assignor’s assignee under
the Transaction Documents. Each of the undersigned hereby represents and
warrants to Bank that (i) it has no knowledge of any fact or circumstance which
would or could have a material adverse effect on the rights granted to Bank in
the Transaction Documents, (ii) each of the Transaction Documents complies with
all applicable laws and regulations, (iii) each of the Transaction Documents is
in full force and effect, and all signatures, names, addresses, amounts and
other statements and facts contained therein are true and correct, and (iv)
there are no defenses, offsets or counterclaims to enforcement of the
Transaction Documents.

 

ACKNOWLEDGED AND CONSENTED TO

THIS 1st DAY OF OCTOBER, 2003:

 

	
  PROSPECT PROFESSIONAL CARE MEDICAL GROUP, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Jacob Y. Terner

  	
   

  
	
  Name:

  	
  Jacob
  Y. Terner,

  
	
  Title:

  	
  President

  
	
   

  
	
   

  
	
  PROSPECT MEDICAL GROUP, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Jacob Y. Terrier

  	
   

  
	
  Name:

  	
  Jacob
  Y. Terrier,

  
	
  Title:

  	
  President

  
						

 

6Exhibit 10.38

 

AMENDMENT NUMBER ONE TO COLLATERAL

ASSIGNMENT OF TRANSACTION DOCUMENTS

 

THIS AMENDMENT NUMBER ONE TO COLLATERAL ASSIGNMENT OF TRANSACTION
DOCUMENTS (this “Amendment”) has been executed and delivered as of
January 26, 2000, by and between PROSPECT MEDICAL SYSTEMS, INC., a Delaware
corporation (“Assignor”), and IMPERIAL BANK, a California banking
corporation (“Bank”), with reference to the following facts:

 

RECITALS

 

A.            Assignor and Bank
have entered into that certain Collateral Assignment of Transaction Documents,
dated as of July 3, 1997 (the Assignment”), pursuant to which Assignor
assigned to Bank the Transaction Documents.

 

B.            The Transaction
Documents included that certain Assignable Option Agreement, dated as of June
5, 1996, by and among Assignor, Physician Group, and Gregg DeNicola, M.D. (“DeNicola”)
relating in part to shares of Physician Group (the “Shares”) owned by
DeNicola (the “Old Option Agreement”).

 

C.            On September 2,
1998, Physician Group, Assignor and DeNicola, entered into that certain Amended
and Restated Assignable Option Agreement, pursuant to which Assignor exercised
its option to buy all the Shares from DeNicola and designated Jacob Y.  Terner (“Terner”) as the Successor
Physician to DeNicola on January 13, 2000.

 

D.            Assignor, Physician
Group and Terner are contemporaneously herewith entering into that certain
Assignable Option Agreement (the “New Option Agreement”), to reflect
Terner as the owner of the Shares.

 

E.             Assignor and Bank
have agreed to amend the Assignment to include the New Option Agreement as one
of the Transaction Documents.

 

AGREEMENT

 

In consideration of the premises and the mutual agreements herein set
forth, Assignor and Bank hereby agree as follows:

 

1.             Defined Terms.  All initially capitalized terms used but not
defined herein shall have the meanings assigned to such terms in the
Assignment.

 

1

 

2.             Amendments.

 

2.1           Section 2.1(b) of the Assignment is
amended to read as follows:

 

“(b)         Assignable Option Agreement,
dated as of January 13, 2000, by and among Assignor, Physician Group and Jacob
Y. Terner, M.D.; and”

 

3.             Transaction Documents.  Concurrent herewith, Assignor is delivering
to Bank possession of the original New Option Agreement, together with any and
all amendments thereto, as in effect on the date hereof.

 

4.             Counterparts: Effectiveness.  This Amendment may be executed in any number
of counterparts, each of which, when executed and delivered, shall be deemed to
be an original.  All of such counterparts,
taken together, shall constitute but one and the same agreement.  This Amendment shall become effective upon
the execution of a counterpart of this Amendment by each of the parties hereto.

 

5.             Limited Effect.  In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the
Assignment, the terms and provisions of this Amendment shall govern.  In all other respects, the Assignment, as
amended and supplemented hereby, shall remain in full force and effect.

 

[Remainder of this page intentionally left blank]

 

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EXECUTED as of the date first above written.

 

	
   

  	
  “Assignor”

  
	
   

  	
   

  
	
   

  	
  PROSPECT MEDICAL SYSTEMS, INC.,

  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Title:

  	
  [ILLEGIBLE]

  	
   

  
	
   

  	
   

  
	
   

  	
  “Bank”

  
	
   

  	
   

  
	
   

  	
  IMPERIAL BANK,

  
	
   

  	
  a California banking corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Title:

  	
  [ILLEGIBLE]

  	
   

  
						

 

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CONSENT TO ASSIGNMENT

 

The undersigned acknowledges the terms of the above Amendment and the
Assignment, consents to the assignment by Assignor to Bank of the New Option
Agreement and agrees to recognize Bank or Bank’s nominee as Assignor’s assignee
under the New Option Agreement, notwithstanding anything to the contrary in
Section 5 of the New Option Agreement. 
The undersigned hereby represents and warrants to Bank that (i) it has
no knowledge of any fact or circumstance which would or could have a material
adverse effect on the rights granted to Bank in the New Option Agreement, (ii)
the New Option Agreement complies with all applicable laws and regulations,
(iii) the New Option Agreement is in full force and effect, and all signatures,
names, addresses, amounts and other statements and facts contained therein are
true and correct, and (iv) there are no defenses, offsets or counterclaims to
enforcement of the New Option Agreement.

 

ACKNOWLEDGED AND CONSENTED TO

THIS 26th DAY OF JANUARY, 2000:

 

	
  /s/ Jacob Y. Terrier

  	
   

  
	
  Jacob Y. Terrier, M.D.

  

 

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