**Exhibit 10.6**

 

 

BORROWERS:

ProspectMedical Holdings, Inc. and

Prospect Medical Group

GUARANTORS:

See Signature Pages

CONTINUING ANDUNCONDITIONAL GUARANTY

To:          Bank of America, N.A., asadministrative agent

1.             The Guaranty. For valuable consideration, each of the undersigned (each a “Guarantor”)hereby unconditionally guarantees and promises to pay promptly to Bank ofAmerica, N.A., as administrative agent for the benefit of the hereinafterdefined Lenders, its subsidiaries and affiliates (collectively, “AdministrativeAgent”), or order, in lawful money of the United States, any and allIndebtedness of Prospect Medical Holdings, Inc. and/or Prospect Medical Group(each a “Borrower”) to Administrative Agent or any Lender when due,whether at stated maturity, upon acceleration or otherwise, and at all timesthereafter.  The liability of Guarantorunder this Guaranty is not limited as to the principal amount of theIndebtedness guaranteed and includes, without limitation, liability for allinterest, fees, indemnities (including, without limitation, hazardous wasteindemnities), and other costs and expenses relating to or arising out of theIndebtedness and for all swap, option, or forward obligations now or hereafterowing from Borrower to Administrative Agent or any Lender.  The liability of Guarantor is continuing andrelates to any Indebtedness, including that arising under successivetransactions which shall either continue the Indebtedness or from time to timerenew it after it has been satisfied. This Guaranty is cumulative and does not supersede any other outstandingguaranties, and the liability of Guarantor under this Guaranty is exclusive ofGuarantor’s liability under any other guaranties signed by Guarantor.  If multiple individuals or entities sign thisGuaranty, their obligations under this Guaranty shall be joint andseveral.  If Guarantor is a subsidiary oraffiliate of Borrower, Guarantor’sliability hereunder shall not exceed at any one time the largest amount duringthe period commencing with Guarantor’s execution of this Guaranty andthereafter that would not render Guarantor’s obligations hereunder subject toavoidance under Section 548 of the Bankruptcy Code (Title 11, United StatesCode) or any comparable provisions of any applicable state law.

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2.             Definitions.

(a)           “Borrower” shall mean theindividual or the entity named in Paragraph 1 of this Guaranty and, ifmore than one, then any one or more of them.

(b)           “Credit Agreement” means theCredit Agreement dated of even date herewith among the Borrowers, theAdministrative Agent and the other lending institutions from time to time partythereto, as the same may be amended, extended, increased, supplemented,restated, or otherwise modified.

(c)           “Guarantor” shall mean theindividual or the entity signing this Guaranty and, if more than one, then anyone or more of them.

(d)           “Indebtedness” shall mean anyand all debts, liabilities, and obligations of Borrower to the AdministrativeAgent or any Lender, now or hereafter existing, whether voluntary or involuntaryand however arising, whether direct or indirect or acquired by theAdministrative Agent or such Lender by assignment, succession, or otherwise,whether due or not due, absolute or contingent, liquidated or unliquidated,determined or undetermined, held or to be held by the Administrative Agent orsuch Lender for its own account or as agent for another or others, whetherBorrower may be liable individually or jointly with others, whether recoveryupon such debts, liabilities, and obligations may be or hereafter become barredby any statute of limitations, and whether such debts, liabilities, andobligations may be or hereafter become otherwise unenforceable.  Indebtedness includes, without limitation,any and all obligations of Borrower to the Administrative Agent and the Lendersfor reasonable attorneys’ fees and all other costs and expenses incurred by theAdministrative Agent or any Lender in the collection or enforcement of anydebts, liabilities, and obligations of Borrower to the Administrative Agent orany Lender.  Indebtedness also includes,without limitation, all obligations of Borrower arising under any interestrate, credit, commodity or equity swap, cap, floor, collar, forward foreignexchange transaction, currency swap, cross currency rate swap, currency option,securities puts, calls, collars, options or forwards or any combination of, oroption with respect to, these or similar transactions now or hereafter enteredinto between Borrower and the Administrative Agent or any Lender.

(e)           “Lender” shall have themeaning set forth in the Credit Agreement.

(f)            “Loan Documents” shall meanthe Credit Agreement, promissory notes from Borrower in favor of the Lenders,and all other agreements, documents, and instruments evidencing any of theIndebtedness, and deeds of trust, mortgages, security agreements, and otheragreements, documents, and instruments executed by Borrower in connection withsuch loan agreements, promissory notes, and other agreements, documents, andinstruments evidencing any of the Indebtedness, all as now in effect and ashereafter amended, restated, renewed, or superseded.

3.             Obligations Independent.  The obligations hereunder are independent ofthe obligations of Borrower or any other guarantor, and a separate action oractions may be brought and prosecuted against Guarantor whether action isbrought against Borrower or any other 

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guarantor or whether Borrower or any other guarantorbe joined in any such action or actions. Anyone executing this Guaranty shall be bound by its terms withoutregard to execution by anyone else.

4.             Rights of the Administrative Agent.  Guarantor authorizes the AdministrativeAgent, without notice or demand and without affecting its liability hereunder,from time to time to:

(a)           renew, compromise, extend,accelerate, or otherwise change the time for payment, or otherwise change theterms, of the Indebtedness or any part thereof, including increase or decreaseof the rate of interest thereon, or otherwise change the terms of any LoanDocuments;

(b)           receive and hold security for thepayment of this Guaranty or any Indebtedness and exchange, enforce, waive,release, fail to perfect, sell, or otherwise dispose of any such security;

(c)           apply such security and direct theorder or manner of sale thereof as the Administrative Agent in its discretionmay determine;

(d)           release or substitute any Guarantoror any one or more of any endorsers or other guarantors of any of theIndebtedness; and

(e)           permit the Indebtedness to exceedGuarantor’s liability under this Guaranty, and Guarantor agrees that anyamounts received by the Administrative Agent from any source other thanGuarantor shall be deemed to be applied first to any portion of theIndebtedness not guaranteed by Guarantor.

5.             Guaranty to be Absolute.  Guarantor agrees that until the Indebtednesshas been paid in full and any commitments of the Administrative Agent and theLenders or facilities provided by the Administrative Agent or any Lender withrespect to the Indebtedness have been terminated, Guarantor shall not bereleased by or because of the taking, or failure to take, any action that mightin any manner or to any extent vary the risks of Guarantor under this Guarantyor that, but for this paragraph, might discharge or otherwise reduce, limit, ormodify Guarantor’s obligations under this Guaranty.  Guarantor waives and surrenders any defenseto any liability under this Guaranty based upon any such action, including butnot limited to any action of the Administrative Agent or any Lender describedin the immediately preceding paragraph of this Guaranty.  It is the express intent of Guarantor thatGuarantor’s obligations under this Guaranty are and shall be absolute andunconditional.

6.             Guarantor’sWaivers of Certain Rights and Certain Defenses.  Guarantor waives:

(a)           any right to require theAdministrative Agent and the Lenders to proceed against Borrower, proceedagainst or exhaust any security for the Indebtedness, or pursue any otherremedy in the Administrative Agent’s or any Lender’s power whatsoever;

(b)           any defense arising by reason of anydisability or other defense of Borrower, or the cessation from any causewhatsoever of the liability of Borrower;

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(c)           any defense based on any claim thatGuarantor’s obligations exceed or are more burdensome than those of Borrower;and

(d)           the benefit of any statute oflimitations affecting Guarantor’s liability hereunder.

No provision or waiver in this Guaranty shall beconstrued as limiting the generality of any other waiver contained in thisGuaranty.

7.             Waiver of Subrogation.  Until the Indebtedness has been paid in fulland any commitments of the Administrative Agent and the Lenders or facilitiesprovided by the Administrative Agent or any Lender with respect to theIndebtedness have been terminated, even though the Indebtedness may be inexcess of Guarantor’s liability hereunder, Guarantor waives to the extentpermitted by applicable law any right of subrogation, reimbursement,indemnification, and contribution (contractual, statutory, or otherwise)including, without limitation, any claim or right of subrogation under theBankruptcy Code (Title 11, United States Code) or any successor statute,arising from the existence or performance of this Guaranty, and Guarantorwaives to the extent permitted by applicable law any right to enforce anyremedy that the Administrative Agent or any Lender now has or may hereafterhave against Borrower, and waives any benefit of, and any right to participatein, any security now or hereafter held by the Administrative Agent or anyLender.

8.             Waiver of Notices.  Guarantor waives all presentments, demandsfor performance, notices of nonperformance, protests, notices of protest,notices of dishonor, notices of intent to accelerate, notices of acceleration,notices of any suit or any other action against Borrower or any other person,any other notices to any party liable on any Loan Document (includingGuarantor), notices of acceptance of this Guaranty, notices of the existence,creation, or incurring of new or additional Indebtedness to which this Guarantyapplies or any other Indebtedness of Borrower to the Administrative Agent orany Lender, and notices of any fact that might increase Guarantor’s risk.

9.             General PartnerLiability and Waivers of Other Rights and Defenses.

(a)           If Borrower is a partnership andGuarantor is a general partner of that partnership, then Guarantor shall not beliable under this Guaranty for any portion of the Indebtedness that is securedby real property; provided, however, that Guarantor shall remainliable under partnership law for all the Indebtedness.

(b)           Guarantor waives any rights anddefenses that are or may become available to Guarantor by reason of Sections2787 to 2855, inclusive, of the California Civil Code.

(c)           Guarantor waives all rights and defensesthat Guarantor may have because any of the Indebtedness is secured by realproperty.  This means, among otherthings:  (i) the Administrative Agent maycollect from Guarantor without first foreclosing on any real or personalproperty collateral pledged by Borrower; and (ii) if the Administrative Agentforecloses on any real property collateral pledged by Borrower:  (1) the amount of the Indebtedness may bereduced only by the price for which that collateral is sold at the 

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foreclosure sale, even ifthe collateral is worth more than the sale price, and (2) the AdministrativeAgent may collect from Guarantor even if the Administrative Agent, byforeclosing on the real property collateral, has destroyed any right Guarantormay have to collect from Borrower.  Thisis an unconditional and irrevocable waiver of any rights and defenses Guarantormay have because any of the Indebtedness is secured by real property.  These rights and defenses include, but arenot limited to, any rights or defenses based upon Section 580a, 580b, 580d, or726 of the California Code of Civil Procedure.

(d)           Guarantor waives any right or defenseit may have at law or equity, including California Code of Civil ProcedureSection 580a, to a fair market value hearing or action to determine adeficiency judgment after a foreclosure.

10.           Security.  To secure all of Guarantor’s obligationshereunder, Guarantor assigns and grants to the Administrative Agent a securityinterest in all moneys, securities, and other property of Guarantor now orhereafter in the possession of the Administrative Agent or any Lender, alldeposit accounts of Guarantor maintained with the Administrative Agent or anyLender, and all proceeds thereof.  Upondefault or breach of any of Guarantor’s obligations to the Administrative Agentor any Lender, the Administrative Agent may apply any deposit account to reducethe Indebtedness, and may foreclose any collateral as provided in the UniformCommercial Code and in any security agreements between the Administrative Agentand Guarantor.

11.           Subordination.  Any obligations of Borrower to Guarantor, nowor hereafter existing, including but not limited to any obligations toGuarantor as subrogee of the Administrative Agent or any Lender or resultingfrom Guarantor’s performance under this Guaranty, are hereby subordinated tothe Indebtedness.  In addition toGuarantor’s waiver of any right of subrogation as set forth in this Guarantywith respect to any obligations of Borrower to Guarantor as subrogee of theAdministrative Agent or any Lender, Guarantor agrees that, if theAdministrative Agent so requests, Guarantor shall not demand, take, or receivefrom Borrower, by setoff or in any other manner, payment of any otherobligations of Borrower to Guarantor until the Indebtedness has been paid infull and any commitments of the Administrative Agent and the Lenders orfacilities provided by the Administrative Agent or any Lender with respect tothe Indebtedness have been terminated. If any payments are received by Guarantor in violation of such waiver oragreement, such payments shall be received by Guarantor as trustee for theAdministrative Agent and the Lenders and shall be paid over to theAdministrative Agent on account of the Indebtedness, but without reducing oraffecting in any manner the liability of Guarantor under the other provisionsof this Guaranty.  Any security interest,lien, or other encumbrance that Guarantor may now or hereafter have on anyproperty of Borrower is hereby subordinated to any security interest, lien, orother encumbrance that the Administrative Agent or any Lender may have on anysuch property.

12.           Revocation ofGuaranty.

(a)           This Guaranty may be revoked at anytime by Guarantor in respect to future transactions, unless there is acontinuing consideration as to such transactions that Guarantor does notrenounce.  Such revocation shall beeffective upon actual receipt by the Administrative Agent, at the address shownbelow or at such other address as may 

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have been provided toGuarantor by the Administrative Agent, of written notice of revocation.  Revocation shall not affect any of Guarantor’sobligations or the Administrative Agent’s rights with respect to transactionscommitted or entered into prior to the Administrative Agent’s receipt of suchnotice, regardless of whether or not the Indebtedness related to suchtransactions, before or after revocation, has been incurred, renewed,compromised, extended, accelerated, or otherwise changed as to any of itsterms, including time for payment or increase or decrease of the rate ofinterest thereon, and regardless of any other act or omission of theAdministrative Agent authorized hereunder.  Revocation by a Guarantorshall not affect any obligations of any other guarantor.

(b)           Guarantor acknowledges and agreesthat this Guaranty may be revoked only in accordance with the foregoingprovisions of this paragraph and shall not be revoked simply as a result of anychange in name, location, or composition or structure of Borrower, thedissolution of Borrower, or the termination, increase, decrease, or otherchange of any personnel or owners of Borrower.

13.           Reinstatement of Guaranty.  If this Guaranty is revoked, returned, orcanceled, and subsequently any payment or transfer of any interest in propertyby Borrower to the Administrative Agent or any Lender is rescinded or must bereturned by the Administrative Agent or such Lender to Borrower, this Guarantyshall be reinstated with respect to any such payment or transfer, regardless ofany such prior revocation, return, or cancellation.

14.           Stay of Acceleration.  In the event that acceleration of the timefor payment of any of the Indebtedness is stayed upon the insolvency,bankruptcy, or reorganization of Borrower or otherwise, all such Indebtednessguaranteed by Guarantor shall nonetheless be payable by Guarantor immediatelyif requested by the Administrative Agent.

15.           No Setoff orDeductions; Taxes.

(a)           Guarantor represents and warrantsthat it is organized and resident in the United States of America.  All payments by Guarantor hereunder shall bepaid in full, without setoff or counterclaim or any deduction or withholdingwhatsoever, including, without limitation, for any and all present and futuretaxes.  If Guarantor must make a paymentunder this Guaranty, Guarantor represents and warrants that it will make thepayment from one of its U.S. resident offices to the Administrative Agent sothat no withholding tax is imposed on the payment.  Notwithstanding the foregoing, if Guarantormakes a payment under this Guaranty to which withholding tax applies or if anytaxes (other than taxes on net income (i) imposed by the country or anysubdivision of the country in which the Administrative Agent’s principal officeor actual lending office is located and (ii) measured by the United Statestaxable income the Administrative Agent and the Lenders would have received ifall payments under or in respect of this Guaranty were exempt from taxes leviedby Guarantor’s country) are at any time imposed on any payments under or in respectof this Guaranty including, but not limited to, payments made pursuant to thisparagraph, Guarantor shall pay all such taxes to the relevant authority inaccordance with applicable law such that the Administrative Agent receives thesum it would have received had no such deduction or withholding been made (or,if 

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Guarantor cannot legallycomply with the foregoing, Guarantor shall pay to the Administrative Agent suchadditional amounts aswill result in the Administrative Agent receiving the sum it would havereceived had no such deduction or withholding been made).  Further, Guarantor shall also pay to theAdministrative Agent, on demand, all additional amounts that the AdministrativeAgent specifies as necessary to preserve the after-tax yield the AdministrativeAgent and the Lenders  would havereceived if such taxes had not been imposed.

(b)           Guarantor shall promptly provide theAdministrative Agent with an original receipt or certified copy issued by therelevant authority evidencing the payment of any such amount required to bededucted or withheld.

16.           Information Relating to Borrower.  Guarantor acknowledges and agrees that it hasmade such independent examination, review, and investigation of the LoanDocuments as Guarantor deems necessary and appropriate, including, withoutlimitation, any covenants pertaining to Guarantor contained therein, and shallhave sole responsibility to obtain from Borrower any information required byGuarantor about any modifications thereto. Guarantor further acknowledges and agrees that it shall have the soleresponsibility for, and has adequate means of, obtaining from Borrower suchinformation concerning Borrower’s financial condition or business operations asGuarantor may require, and that the Administrative Agent has no duty, andGuarantor is not relying on the Administrative Agent, at any time to discloseto Guarantor any information relating to the business operations or financialcondition of Borrower.

17.           Borrower’s Authorization.  Where Borrower is a corporation, partnership,or limited liability company, it is not necessary for the Administrative Agentto inquire into the powers of Borrower or of the officers, directors, partners,members, managers, or agents acting or purporting to act on its behalf, and anyIndebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed hereunder, subject to any limitations on Guarantor’sliability set forth herein.

18.           Information Relating to Guarantor.  Guarantor authorizes the Administrative Agentto verify or check any information given by Guarantor to the AdministrativeAgent, check Guarantor’s credit references, verify employment, and obtaincredit reports. Guarantor acknowledges and agrees that the authorizationsprovided in this paragraph apply to any individual general partner of Guarantorand to Guarantor’s spouse and any such general partner’s spouse if Guarantor orsuch general partner is married and lives in a community property state.

19.           Change of Status.  Any Guarantor that is a business entity shallnot enter into any consolidation, merger, or other combination unless Guarantoris the surviving business entity. Further, Guarantor shall not change its legal structure unless (a) Guarantorobtains the prior written consent of the Administrative Agent and (b) allGuarantor’s obligations under this Guaranty are assumed by the new businessentity.

20.           Remedies.  If Guarantor fails to fulfill its duty to payall Indebtedness guaranteed hereunder, the Administrative Agent shall have allof the remedies of a creditor and, to the extent applicable, of a securedparty, under all applicable law.  Withoutlimiting the foregoing, the Administrative Agent may, at its option and withoutnotice or demand:

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(a)           declare any Indebtedness due andpayable at once;

(b)           take possession of any collateralpledged by Borrower or Guarantor, wherever located, and sell, resell, assign,transfer, and deliver all or any part of the collateral at any public orprivate sale or otherwise dispose of any or all of the collateral in its thencondition, for cash or on credit or for future delivery, and in connectiontherewith the Administrative Agent may impose reasonable conditions upon anysuch sale.  Further, the AdministrativeAgent, unless prohibited by law the provisions of which cannot be waived, maypurchase all or any part of the collateral to be sold, free from and dischargedof all trusts, claims, rights of redemption and equities of Borrower orGuarantor whatsoever.  Guarantoracknowledges and agrees that the sale of any collateral through any nationallyrecognized broker-dealer, investment banker, or any other method common in thesecurities industry shall be deemed a commercially reasonable sale under theUniform Commercial Code or any other equivalent statute or federal law, andexpressly waives notice thereof except as provided herein; and

(c)           set off against any or allliabilities of Guarantor all money owed by the Administrative Agent, any Lenderor any of their respective agents or affiliates in any capacity to Guarantor,whether or not due, and also set off against all other liabilities of Guarantorto the Administrative Agent and the Lenders all money owed by theAdministrative Agent or any Lender in any capacity to Guarantor.  If exercised by the Administrative Agent, theAdministrative Agent shall be deemed to have exercised such right of setoff andto have made a charge against any such money immediately upon the occurrence ofsuch default although made or entered on the books subsequent thereto.

21.           Notices.  All notices required under this Guarantyshall be personally delivered or sent by first class mail, postage prepaid, orby overnight courier, to the addresses on the signature page of this Guaranty,or sent by facsimile to the fax numbers listed on the signature page, or tosuch other addresses as the Administrative Agent and Guarantor may specify fromtime to time in writing.  Notices sent by(a) first class mail shall be deemed delivered on the earlier of actual receiptor on the fourth business day after deposit in the U.S. mail, postage prepaid,(b) overnight courier shall be deemed delivered on the next business day,and (c) telecopy shall be deemed delivered when transmitted.

22.           Successors and Assigns.  This Guaranty (a) binds Guarantor andGuarantor’s executors, administrators, successors, and assigns, provided thatGuarantor may not assign its rights or obligations under this Guaranty withoutthe prior written consent of the Administrative Agent, and (b) inures to thebenefit of the Administrative Agent and the Lenders and their respectiveindorsees, successors, and assigns.  TheAdministrative Agent and the Lenders may, without notice to Guarantor andwithout affecting Guarantor’s obligations hereunder, sell, assign, grantparticipations in, or otherwise transfer to any other person, firm, orcorporation the Indebtedness and this Guaranty, in whole or in part.  Guarantor agrees that the AdministrativeAgent and each Lender may disclose to any assignee or purchaser, or anyprospective assignee or purchaser, of all or part of the Indebtedness any andall information in the Administrative Agent’s or such Lender’s possessionconcerning Guarantor, this Guaranty, and any security for this Guaranty.

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23.           Amendments, Waivers, andSeverability.  No provision of thisGuaranty may be amended or waived except in writing.  No failure by the Administrative Agent toexercise, and no delay in exercising, any of its rights, remedies, or powersshall operate as a waiver thereof, and no single or partial exercise of anysuch right, remedy, or power shall preclude any other or further exercisethereof or the exercise of any other right, remedy, or power.  The unenforceability or invalidity of anyprovision of this Guaranty shall not affect the enforceability or validity ofany other provision of this Guaranty.

24.           Costs and Expenses.  Guarantor agrees to pay all reasonableattorneys’ fees, including allocated costs of the Administrative Agent’sin-house counsel to the extent permitted by applicable law, and all other costsand expenses that may be incurred by the Administrative Agent and the Lenders(a) in the enforcement of this Guaranty or (b) in the preservation, protection,or enforcement of any rights of the Administrative Agent and the Lenders in anycase commenced by or against Guarantor or Borrower under the Bankruptcy Code(Title 11, United States Code) or any similar or successor statute.

25.           Governing Law and Jurisdiction.  This Guaranty shall be governed by andconstrued and enforced in accordance with federal law and the law of the Stateof California.  Jurisdiction and venuefor any action or proceeding to enforce this Guaranty shall be the forumappropriate for such action or proceeding against Borrower, to whichjurisdiction Guarantor irrevocably submits and to which venue Guarantor waivesto the fullest extent permitted by law any defense asserting an inconvenientforum in connection therewith.  It isprovided, however, that if Guarantor owns property in another state,notwithstanding that the forum for enforcement action is elsewhere, theAdministrative Agent may commence a collection proceeding in any state in whichGuarantor owns property for the purpose of enforcing provisional remediesagainst such property.  Service ofprocess by the Administrative Agent in connection with such action orproceeding shall be binding on Guarantor if sent to Guarantor by registered orcertified mail at its address specified below.

26.           Dispute Resolution Provision.  This paragraph, including the subparagraphs below,is referred to as the “Dispute Resolution Provision.”  This Dispute Resolution Provision is amaterial inducement for the parties entering into this agreement.

(a)           This Dispute Resolution Provisionconcerns the resolution of any controversies or claims between the parties,whether arising in contract, tort or by statute, including but not limited tocontroversies or claims that arise out of or relate to: (i) this agreement(including any renewals, extensions or modifications); or (ii) any document relatedto this agreement (collectively a “Claim”).  For the purposes of this Dispute ResolutionProvision only, the term “parties” shall include any parent corporation,subsidiary or affiliate of the Administrative Agent involved in the servicing,management or administration of any obligation described or evidenced by thisagreement.

(b)           At the request of any party to thisagreement, any Claim shall be resolved by binding arbitration in accordancewith the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”).  The Act will apply even though this agreementprovides that it is governed by the law of a specified state.

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(c)           Arbitration proceedings will bedetermined in accordance with the Act, the then-current rules and proceduresfor the arbitration of financial services disputes of the American ArbitrationAssociation or any successor thereof (“AAA”), and the terms of thisDispute Resolution Provision.  In theevent of any inconsistency, the terms of this Dispute Resolution Provisionshall control.  If AAA is unwilling orunable to (i) serve as the provider of arbitration or (ii) enforce anyprovision of this arbitration clause, the Administrative Agent may designateanother arbitration organization with similar procedures to serve as theprovider of arbitration.

(d)           The arbitration shall be administeredby AAA and conducted, unless otherwise required by law, in any U.S. state wherereal or tangible personal property collateral for this credit is located or ifthere is no such collateral, in the state specified in the governing lawsection of this agreement.  All Claimsshall be determined by one arbitrator; however, if Claims exceed Five MillionDollars ($5,000,000), upon the request of any party, the Claims shall be decidedby three arbitrators.  All arbitrationhearings shall commence within ninety (90) days of the demand for arbitrationand close within ninety (90) days of commencement and the award of thearbitrator(s) shall be issued within thirty (30) days of the close of thehearing.  However, the arbitrator(s),upon a showing of good cause, may extend the commencement of the hearing for upto an additional sixty (60) days.  Thearbitrator(s) shall provide a concise written statement of reasons for theaward.  The arbitration award may besubmitted to any court having jurisdiction to be confirmed and have judgmententered and enforced.

(e)           The arbitrator(s) will give effect tostatutes of limitation in determining any Claim and may dismiss the arbitrationon the basis that the Claim is barred. For purposes of the application of anystatutes of limitation, the service on AAA under applicable AAA rules of anotice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitrationprovision or whether a Claim is arbitrable shall be determined by thearbitrator(s), except as set forth at subparagraph (j) of this DisputeResolution Provision.  The arbitrator(s)shall have the power to award legal fees pursuant to the terms of thisagreement.

(f)            The procedure described above willnot apply if the Claim, at the time of the proposed submission to arbitration,arises from or relates to an obligation to the Administrative Agent secured byreal property.  In this case, all of theparties to this agreement must consent to submission of the Claim toarbitration.

(g)           To the extent any Claims are notarbitrated, to the extent permitted by law the Claims shall be resolved incourt by a judge without a jury, except any Claims which are brought inCalifornia state court shall be determined by judicial reference as describedbelow.

(h)           Any Claim which is not arbitrated andwhich is brought in California state court will be resolved by a generalreference to a referee (or a panel of referees) as provided in California Codeof Civil Procedure Section 638.  Thereferee (or presiding referee of the panel) shall be a retired Judge orJustice.  The referee (or panel ofreferees) shall be selected by mutual written agreement of the parties.  If the parties do not agree, 

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the referee shall beselected by the Presiding Judge of the Court (or his or her representative) asprovided in California Code of Civil Procedure Section 638 and the followingrelated sections.  The referee shalldetermine all issues in accordance with existing California law and the Californiarules of evidence and civil procedure. The referee shall be empowered to enterequitable as well as legal relief, provide all temporary or provisionalremedies, enter equitable orders that will be binding on the parties and ruleon any motion which would be authorized in a trial, including withoutlimitation motions for summary judgment or summary adjudication . The awardthat results from the decision of the referee(s) will be entered as a judgmentin the court that appointed the referee, in accordance with the provisions ofCalifornia Code of Civil Procedure Sections 644(a) and 645.  The parties reserve the right to seekappellate review of any judgment or order, including but not limited to, orderspertaining to class certification, to the same extent permitted in a court oflaw.

(i)            This Dispute Resolution Provisiondoes not limit the right of any party to: (i) exercise self-help remedies, suchas but not limited to, setoff; (ii) initiate judicial or non-judicialforeclosure against any real or personal property collateral; (iii) exerciseany judicial or power of sale rights, or (iv) act in a court of law to obtainan interim remedy, such as but not limited to, injunctive relief, writ ofpossession or appointment of a receiver, or additional or supplementaryremedies.  The filing of a court actionis not intended to constitute a waiver of the right of any party, including thesuing party, thereafter to require submittal of the Claim to arbitration orjudicial reference.

(j)            Any arbitration, judicial referenceor trial by a judge of any Claim will take place on an individual basis withoutresort to any form of class or representative action (the “Class ActionWaiver”).  Regardless of anythingelse in this Dispute Resolution Provision, the validity and effect of the ClassAction Waiver may be determined only by a court or referee and not by anarbitrator.  The parties to thisAgreement acknowledge that the Class Action Waiver is material and essential tothe arbitration of any disputes between the parties and is nonseverable fromthe agreement to arbitrate Claims. If the Class Action Waiver is limited,voided or found unenforceable, then the parties’ agreement to arbitrate shallbe null and void with respect to such proceeding, subject to the right to appealthe limitation or invalidation of the Class Action Waiver.  **The Partiesacknowledge and agree that under no circumstances will a class action bearbitrated.**

(k)           By agreeing to bindingarbitration or judicial reference, the parties irrevocably and voluntarilywaive any right they may have to a trial by jury as permitted by law in respectof any Claim.  Furthermore, withoutintending in any way to limit this Dispute Resolution Provision, to the extentany Claim is not arbitrated or submitted to judicial reference, the partiesirrevocably and voluntarily waive any right they may have to a trial by jury tothe extent permitted by law in respect of such Claim.  This waiver of jury trial shall remain ineffect even if the Class Action Waiver is limited, voided or foundunenforceable.  **WHETHER THE CLAIM IS DECIDED BY ARBITRATION,BY JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTANDTHAT THE EFFECT OF THIS AGREEMENT IS**

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**THAT THEY ARE GIVINGUP THE RIGHT TO TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.**

27.           FINAL AGREEMENT.  BY SIGNING THIS DOCUMENT EACH PARTYREPRESENTS AND AGREES THAT:  (A) THISDOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN PARTIES WITH RESPECT TO THESUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERMSHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECTMATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTENOUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THEREARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAYNOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENTORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

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Executed as ofthis 1st day of June, 2007.
|        | GUARANTORS:                                                                                       |
|--------|---------------------------------------------------------------------------------------------------|
|   |                                                                                              |
|   | ANTELOPE VALLEY  MEDICAL ASSOCIATES, INC., a California professional corporation                  |
|   | APAC MEDICAL  GROUP, INC., a California professional corporation                                  |
|   | PEGASUS MEDICAL  GROUP, INC., a California professional corporation                               |
|   | PROSPECT  ADVANTAGE NETWORK, INC., a California corporation                                       |
|   | PROSPECT HEALTH  SOURCE MEDICAL GROUP, INC., a California professional corporation                |
|   | PROSPECT  HOSPITAL ADVISORY SERVICES, INC., a California corporation                              |
|   | PROSPECT NWOC  MEDICAL GROUP, INC., a California professional corporation                         |
|   | PROSPECT  PHYSICIAN ASSOCIATES, INC., a California professional corporation                       |
|   | PROSPECT  PROFESSIONAL CARE MEDICAL GROUP, INC., a California professional corporation            |
|   | SANTA ANA/TUSTIN  PHYSICIANS GROUP, INC., a California professional corporation                   |
|   | SIERRA MEDICAL  MANAGEMENT, INC., a Delaware corporation                                          |
|   | SIERRA PRIMARY  CARE MEDICAL GROUP, A MEDICAL CORPORATION, a California professional  corporation |
|   | STARCARE MEDICAL  GROUP, INC., a California professional corporation                              |
|   |                                                                                              |
|   | By:                                                                                               |   |
|   | Name:                                                                                             | Jacob Y. Terner, M.D. |
|   | Title:                                                                                            | Chief Executive Officer |
|   |                                                                                              |   |
|   | PROSPECT MEDICAL  SYSTEMS, INC., a Delaware corporation                                           |
|   |                                                                                              |
|   | By:                                                                                               |   |
|   | Name:                                                                                             | R. Stewart Kahn |
|   | Title:                                                                                            | Executive Vice President |
|        |                                                                                                   |  |  |

 

13

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|        | NUESTRA FAMILIA  MEDICAL GROUP, INC., a California  professional corporation                      |
|--------|---------------------------------------------------------------------------------------------------|
|   |                                                                                              |
|   | By:                                                                                               |   |
|   | Name:                                                                                             | R. Stewart Kahn |
|   | Title:                                                                                            | Vice President |
|   |                                                                                              |
|   | POMONA VALLEY  MEDICAL GROUP, INC., a California professional corporation                         |
|   | PROMED HEALTH CARE  ADMINISTRATORS, a California corporation                                      |
|   | PROMED HEALTH  SERVICES COMPANY, a California corporation                                         |
|   | UPLAND MEDICAL  GROUP, A PROFESSIONAL MEDICAL CORPORATION, a California professional  corporation |
|   |                                                                                              |
|   | By:                                                                                               |   |
|   | Name:                                                                                             | Jacob Y. Terner, M.D. |
|   | Title:                                                                                            | Chief Executive Officer |
|        |                                                                                                   |  |  |

 

Address for notices toGuarantors:

400 Corporate Pointe, Suite425

Culver City, California  90230

Attn:       Chief Executive Officer

Address for notices toAdministrative Agent:

Bank of America, N.A.

Agency Management

Mail Code: WA1-501-32-37

800 Fifth Avenue, Floor 32

Seattle, WA 98104

Attention:             Tiffany Shin

Telephone: (206)358-0078

Telecopier:  (206)358-0971

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