THIS INSTRUMENT IS SUBJECT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION ("AGREEMENT OF REORGANIZATION"), DATED AS OF SEPTEMBER 23, 1997,
BY AND AMONG PROSPECT MEDICAL HOLDINGS, INC., A DELAWARE CORPORATION ("PROSPECT
MEDICAL HOLDINGS"), SIERRA MEDICAL MANAGEMENT, INC., SINNADURAI ▇. ▇▇▇▇▇▇▇,
M.D., KARUNYAN ▇▇▇▇▇▇▇▇▇▇▇▇, M.D. AND THE HOLDER. TERMS USED HEREIN AND NOT
OTHERWISE DEFINED SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE AGREEMENT OF
REORGANIZATION.
THIS INSTRUMENT AND THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED, IN THE
MANNER AND TO THE EXTENT SET FORTH IN A SUBORDINATION AGREEMENT (THE
"SUBORDINATION AGREEMENT") DATED AS OF SEPTEMBER 25, 1997, BY AND AMONG IMPERIAL
BANK, A CALIFORNIA BANKING CORPORATION ("BANK"), PROSPECT MEDICAL HOLDINGS,
INC., A DELAWARE CORPORATION ("PROSPECT MEDICAL HOLDINGS"), PROSPECT MEDICAL
SYSTEMS, INC., A DELAWARE CORPORATION ("MANAGER"), AND THE HOLDER OF THIS
INSTRUMENT, AND THE HOLDER OF THIS INSTRUMENT, BY HIS ACCEPTANCE HEREOF, AGREES
(i) TO BE BOUND BY THE TERMS OF THE SUBORDINATION AGREEMENT AND (ii) IN THE
EVENT THAT ANY CONFLICT EXISTS BETWEEN THE TERMS OF THIS INSTRUMENT, ANY
DOCUMENT EXECUTED IN CONNECTION WITH THE DELIVERY OF THIS INSTRUMENT AND THE
TERMS OF THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT
SHALL GOVERN AND BE CONTROLLING.
SUBORDINATED PROMISSORY NOTE
$250,000 September 25, 1997
Los Angeles, California
For value received, the undersigned Prospect Medical Holdings promises to
pay to ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("Holder"), at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, or at such other place as Holder may from time to time designate, the
principal sum of Two Hundred Fifty Thousand Dollars ($250,000), payable interest
only on the tenth (10) day of each month on the unpaid principal balance at the
rate of seven percent (7%) per annum, with principal payable (i) in quarterly
installments of $12,500 plus (ii) annual payments of $25,000 and continuing
thereafter for 18 months until March 24, 1999 (the "Maturity Date"), when the
unpaid principal balance of this Subordinated Promissory Note ("Note") then
outstanding, and all accrued but unpaid interest, shall be due and payable in
full.
Should interest not be paid when due, it shall thereafter bear like
interest as the principal, but such unpaid interest so compounded shall not
exceed an amount equal to simple interest on the unpaid principal at the
maximum rate permitted by the laws of the State of California. Prospect
Medical Holdings shall at its option be eligible to receive a one-time six
month extension of the Maturity Date of this Note by delivering written notice
of such extension election not later than thirty
(30) days prior to the Maturity Date, with principal payments continuing and
7% interest to be paid monthly on the unpaid principal.
Prospect Medical Holdings may assign its obligations under this Note to
an affiliate at any time provided such affiliate accepts such assignment and
assumes all of the obligations set forth herein. No such assignment shall
relieve Prospect Medical Holdings of its obligations hereunder. This Note is
non-negotiable and may not be assigned by Holder.
Holder may waive compliance with any of the provisions of this Note.
At the option of the holder hereof, this Note shall be immediately due and
payable, without notice or demand, upon the occurrence at any time of any of the
following events:
1. DEFAULT. Any default in the payment of principal or interest when due
hereunder; and
2. BANKRUPTCY. The commencement of proceedings in bankruptcy, or for the
reorganization of any party liable hereon, whether as maker, endorser,
guarantor, surety or otherwise, or for the readjustment of any of the debts of
any of the foregoing parties, under the Federal Bankruptcy Code, as amended, or
any part thereof, or under any other laws, whether state or federal, for the
relief of debtors, now or hereafter existing, by any of the foregoing parties,
or against any of the foregoing parties, which shall not be discharged within
thirty (30) days of their commencement.
Prospect Medical Holdings may, at any time and from time to time, without
penalty, make prepayments which will be applied to the final payment of
principal under this Note, or the principal components of the remaining payments
under this Note in the order or inverse order of maturity, all as the Prospect
Medical Holdings hereof may determine.
In the event AV Hospital, or its affiliates, acquires a portion of
Purchaser's ownership interest in any affiliate of Sierra Primary Care Medical
Group, Inc., a California professional corporation, Prospect Medical Holdings
agrees to use up to 25% of any cash proceeds received by it or Prospect Medical
Group, Inc., a California professional corporation ("Prospect Medical Group") in
such transaction to prepay, on a pro-rata basis, this Note and promissory notes
issued to Sinnadurai ▇. ▇▇▇▇▇▇▇, M.D. and Karunyan ▇▇▇▇▇▇▇▇▇▇▇▇, M.D., each in
the principal amount of $1,125,000.
Presentment, demand and protest, and notices of protest, dishonor, and
non-payment of this Note and all notices of every kind, are hereby waived.
No single or partial exercise of any power hereunder shall preclude the
other or further exercise thereof or the exercise of any other power. No delay
or omission on the part of the holder hereof in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this Note.
The payments under this Note are subject to the rights of recoupment,
offset, and setoff available to Prospect Medical Holdings based on any
misrepresentation, any breach of any warranty, or any other breach of the
Agreement of Reorganization by Holder. In exercising its rights of
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recoupment, offset, or setoff, Prospect Medical Holdings shall not hold back
and keep from the total outstanding principal balance more than the amount of
the liability, loss, costs, or expense.
Prospect Medical Holdings agrees, and the Holder of this Note by acceptance
hereof likewise agrees, that, notwithstanding the terms of this Note, the
payment of the principal, interest and any other amounts due under this Note is
subordinated, to the extent and in the manner set forth in the Subordination
Agreement, to the prior payment of all indebtedness and obligations of Prospect
Medical Holdings owing to Bank, as more particularly set forth in the
Subordination Agreement. In the event that any conflict exists between the
terms of this instrument, any document executed in connection with the delivery
of this instrument and the terms of the Subordination Agreement, the terms of
the Subordination Agreement shall govern and be controlling.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
PROSPECT MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,M.D.
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
Chief Executive Officer
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