**Exhibit10.5**

 

 

**PLEDGEAGREEMENT**

1.             GRANT OFSECURITY INTEREST.  Theundersigned Prospect Medical Group, Inc., a California professional corporation(“Pledgor”) hereby irrevocably and unconditionally grants a securityinterest in, a lien upon and the right of set-off against, and assigns andtransfers to Bank of America, N.A., as administrative agent, and its successorsand assigns (collectively, the “Administrative Agent”), for the benefitof the Administrative Agent and the Lenders (as defined below), all propertyreferred to in Exhibit A attached hereto and incorporated herein, as hereafteramended or supplemented from time to time (the “Collateral”). Theparties hereto expressly agree that all rights, assets and property at any timeheld in or credited to any securities account constituting Collateral shall betreated as financial assets as defined in the Uniform Commercial Code as ineffect in any applicable state (the “UCC”).

2.             INDEBTEDNESS.

(a)           The Collateral secures and willsecure all Indebtedness of Pledgor to the Administrative Agent or anyLender.  Each person or entity obligatedunder any Indebtedness is sometimes referred to in this Agreement as a “Debtor.”

(b)           “Indebtedness”means:

(i)            all debts, obligations orliabilities to the Administrative Agent or any Lender, now or hereafterexisting or incurred whether absolute or contingent, arising under that certainCredit Agreement dated of even date herewith among Prospect Medical Holdings,Inc., Prospect Medical Group, Inc., the Administrative Agent and the otherfinancial institutions from time to time party thereto (the “Lenders”)(the “Credit Agreement”) and all other instruments, documents andagreements of every kind and nature now or hereafter executed in connectionwith the Credit Agreement (including all renewals, increases, extensions,restatements and replacements thereof and amendments and modifications of anyof the foregoing),

(ii)           all debts, obligations or liabilitiesarising pursuant to any agreement between Pledgor and/or any Debtor and theAdministrative Agent, any Lender or any of their respective affiliates nowexisting or hereafter entered into, which provides for an interest rate,credit, commodity or equity swap, cap, floor, collar, forward foreign exchangetransaction, 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 (each a “HedgeTransaction”);

(iii)          all obligations and liabilities of Pledgorto the Administrative Agent hereunder, and

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(iv)          allcosts, attorneys’ fees and expenses incurred by the Administrative Agent inconnection with the collection or enforcement of any of the above.

3.             PLEDGOR’S COVENANTS, REPRESENTATIONS AND WARRANTIES.  Pledgor covenants, represents and warrantsthat unless compliance is waived by the Administrative Agent in writing:

(a)           Pledgor is the legal and beneficialowner of all the Collateral free and clear of any and all liens, encumbrances,or interests of any third parties other than the security interest of theAdministrative Agent, and will keep the Collateral free of all liens, claims,security interests and encumbrances of any kind or nature, whether voluntary orinvoluntary, except the security interest of the Administrative Agent.

(b)           Pledgor shall, at Pledgor’s expense,take all actions necessary or advisable from time to time to maintain the firstpriority and perfection of the security interest of the Administrative Agent inthe Collateral and shall not take any actions that would alter, impair oreliminate said priority or perfection.

(c)           Pledgor agrees to pay prior todelinquency all taxes, charges, liens and assessments against the Collateral,and upon the failure of Pledgor to do so, the Administrative Agent at itsoption may pay any of them and shall be the sole judge of the legality orvalidity thereof and the amount necessary to discharge the same.

(d)           If any of the Collateral is marginstock as defined in Regulation U promulgated by the Board of Governors of theFederal Reserve System of the United States (“FRB”), Pledgor willprovide the Administrative Agent a properly executed Form U-1 PurposeStatement. The Administrative Agent and Pledgor will comply with therequirements and restrictions imposed by Regulation U.

(e)           Pledgor’s exact legal name iscorrectly set forth on the signature page hereof. Pledgor will notify theAdministrative Agent in writing at least 30 days prior to any change in Pledgor’sname or identity.

(f)            If Pledgor is an individual, Pledgorresides and has for the four month period preceding the date hereof resided, orif Pledgor is not an individual, Pledgor’s chief executive office is, and hasbeen for the four-month period preceding the date hereof (or, if less, theentire period of the existence of Pledgor) located, in the state specified onthe signature page hereof.  In addition,if Pledgor is not an individual, Pledgor is an organization of the type and (ifan  unregistered entity), is incorporatedin or organized under the laws of the state specified on such signaturepage.  Pledgor shall give theAdministrative Agent at least thirty (30) days notice before changing thelocation of its residence or its chief executive office, type of organization,business structure  or state ofincorporation or organization.

(g)           If Pledgor is not an individual,Pledgor’s organizational identification number, if any, assigned by its stateof incorporation or organization is correctly set forth on the signature pagehereof.  Pledgor shall promptly notifythe Administrative Agent (i) 

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ofany change of its organizational identification number, or (ii) if Pledgor doesnot have an organizational identification number and later obtains one, of suchorganizational identification number.

4.             REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDINGEQUITY SECURITIES COLLATERAL.  Pledgorhereby represents, warrants and covenants the following with respect to anyequity securities comprising any or all of the Collateral (the “EquitySecurities”) and covenants and agrees to promptly notify the AdministrativeAgent in writing in the event that any of the foregoing representations andwarranties is no longer true and correct:

(a)           The Equity Securities have been dulyauthorized and validly issued and are fully paid and non-assessable.

(b)           There are no restrictions on thepledge of the Equity Securities by Pledgor to the Administrative Agent nor onthe sale of the Equity Securities by Pledgor or the Administrative Agent(whether pursuant to securities laws or regulations or any shareholder, lock-upor other similar agreement or insider trading rules of the issuer).

(c)           Pledgor is not an “affiliate” of theissuer of any of the Equity Securities, as such term is defined in Rule 144 ofthe General Rules and Regulations under the Securities Act of 1933, as amended,issued by the Securities Exchange Commission.

5.             ADMINISTRATIVE AGENT APPOINTED ATTORNEY IN FACT.  Upon the occurrence and during thecontinuation of an Event of Default, Pledgor authorizes and irrevocably appointsthe Administrative Agent as Pledgor’s true and lawful attorney-in-fact withfull power of substitution to take any action and execute or otherwiseauthenticate any record or other documentation that the Administrative Agentconsiders necessary or advisable to accomplish the purposes of this Agreement,including but not limited to, the following actions: (a) to endorse, receive,accept and collect all checks, drafts, other payment orders and instrumentsrepresenting or included in the Collateral or representing any payment,dividend or distribution relating to any Collateral or to take any other actionto enforce, collect or compromise any of the Collateral; (b) to transfer anyCollateral (including converting physical certificates to book-entry holdings)into the name of the Administrative Agent or its nominee or any broker-dealer(which may be an affiliate of the Administrative Agent) and to execute anycontrol agreement covering any Collateral on Pledgor’s behalf and asattorney-in-fact for Pledgor in order to perfect the Administrative Agent’sfirst priority and continuing security interest in the Collateral and in orderto provide the Administrative Agent with control of the Collateral, and Pledgor’ssignature on this Agreement or other authentication of this Agreement shallconstitute an irrevocable direction by Pledgor to any bank, custodian, brokerdealer, any other securities intermediary or commodity intermediary holding anyCollateral or any issuer of any letters of credit to comply with any instructionsor entitlement orders, of the Administrative Agent without further consent ofPledgor; (c) to participate in any recapitalization, reclassification,reorganization, consolidation, redemption, stock split, merger or liquidationof any issuer of securities which constitute Collateral, and in connectiontherewith the Administrative Agent may deposit or surrender control of theCollateral, accept money or other property in exchange for the Collateral, andtake such action as it deems proper in connection therewith, and any money or 

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property received on account of or in exchange for theCollateral shall be applied to the Indebtedness or held by the AdministrativeAgent thereafter as Collateral pursuant to the provisions hereof; (d)  to exercise any right, privilege or optionpertaining to any Collateral, but the Administrative Agent has no obligation todo so; (e) to file any claims, take any actions or institute any proceedingswhich the Administrative Agent determines to be necessary or appropriate tocollect or preserve the Collateral or to enforce the Administrative Agent’srights with respect to the Collateral; (f) to execute in the name or otherwiseauthenticate on behalf of Pledgor any record reasonably believed necessary orappropriate by the Administrative Agent for compliance with laws, rules orregulations applicable to any Collateral, or in connection with exercising theAdministrative Agent’s rights under this Agreement; (g) to file any financingstatement relating to this Agreement electronically, and the AdministrativeAgent’s transmission of Pledgor’s signature on and authentication of thefinancing statement shall constitute Pledgor’s signature on and authenticationof the financing statement; (h) to make any compromise or settlement it deemsdesirable or proper with reference to the Collateral; (i) to do and take anyand all actions with respect to the Collateral and to perform any of Pledgor’sobligations under this Agreement; and (j) to execute any documentationreasonably believed necessary by the Administrative Agent for compliance withRule 144 or any other restrictions, laws, rules or regulations applicable toany Collateral hereunder that constitutes restricted or control securitiesunder the securities laws.  The foregoingappointments are irrevocable and coupled with an interest and shall survive thedeath or disability of Pledgor and shall not be revoked without theAdministrative Agent’s written consent. To the extent permitted by law, Pledgor hereby ratifies all saidattorney-in-fact shall lawfully do by virtue hereof.

6.             VOTING RIGHTS.

(a)           So long as no Event of Default shallhave occurred and is continuing and the Administrative Agent has not deliveredthe notice specified in subsection (b) below, Pledgor shall be entitled to exerciseany and all voting and other consensual rights pertaining to the Collateral orany part thereof for any purpose not inconsistent with the terms of thisAgreement or any document or agreement executed in connection herewith.

(b)           Upon the occurrence and during thecontinuance of an Event of Default, at the option of the Administrative Agentexercised in a writing sent to Pledgor, all rights of Pledgor to exercise thevoting and other consensual rights which it would otherwise be entitled toexercise pursuant to subsection (a) above shall cease, and the AdministrativeAgent shall thereupon have the sole right to exercise such voting and otherconsensual rights.

7.             EVENTS OF DEFAULT;REMEDIES.

(a)           Any one or more of the followingshall be a default hereunder (each an, “Event of Default”):

(i)            Pledgor or any Debtor fails to payany Indebtedness when due, after giving effect to any applicable grace period.

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(ii)           Pledgor or any Debtor fails to cure abreach of any collateral maintenance provisions set forth in this Agreement orin any agreement governing or executed or delivered in connection with anyIndebtedness within the applicable cure period specified therein.

(iii)          Pledgor or any Debtor breaches anyterm, provision, warranty or representation under this Agreement notspecifically referred to in subsection (a) of this Section or breaches anyterm, provision, warranty or representation of any other agreement orinstrument evidencing, securing or executed or delivered in connection with theIndebtedness beyond any grace period provided with respect thereto.

(iv)          A receiver or similar official isappointed for a substantial portion of any business or other property ofPledgor, any Debtor or any guarantor of any Indebtedness, or their business isterminated, or, if Pledgor, any Debtor or any such guarantor is anything otherthan a natural person, such Pledgor, Debtor or guarantor is liquidated ordissolved.

(v)           Pledgor, any Debtor, or any guarantorof any Indebtedness files a bankruptcy petition, a bankruptcy petition is filedagainst any of the foregoing parties, or Pledgor, any Debtor, or any suchguarantor makes a general assignment for the benefit of creditors.

(vi)          Any control agreement covering anyCollateral is breached, or any party to such control agreement terminates ornotifies the Administrative Agent or Pledgor of its intention to terminate thecontrol agreement or denies the enforceability of the control agreement.

(vii)         If any Indebtedness is an obligation orliability of any kind (including any renewals, extensions or modificationsthereof) arising out of or relating to any Hedge Transaction, any terminationevent, event of default or other similar event occurs under such Indebtedness.

(viii)        The occurrence of a default or event ofdefault under any agreement of Pledgor, any Debtor or any other person orentity executed or delivered in connection with the Indebtedness.

(ix)           Any involuntary lien of any kind orcharacter attaches to any of the Collateral.

(b)           If an Event of Default occurs, theAdministrative Agent may do any one or more of the following:

(i)            Declare any Indebtedness immediatelydue and payable, without notice or demand.

(ii)           Exercise as to any or all of theCollateral all the rights, powers and remedies of an owner, subject to the Sectionentitled “VOTING RIGHTS”.

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(iii)          Enforce the security interest givenhereunder pursuant to the UCC and any other applicable law.

(iv)          Sell all or any part of the Collateralat public or private sale in accordance with the UCC, without advertisement, insuch manner and order as the Administrative Agent may elect.  The Administrative Agent may purchase theCollateral for its own account at any such sale. The Administrative Agent shallgive Pledgor such notice of any public or private sale as may be required bythe UCC, provided that to the extent notice of any such sale is required by theUCC or other applicable law, Pledgor agrees that at least 10 days notice toPledgor of the time and place of any public sale or the time after which anyprivate sale is to be made shall constitute reasonable notification andprovided further that, if the Administrative Agent fails to comply with thissentence in any respect, its liability for such failure shall be limited to theliability (if any) imposed on it as a matter of law under the UCC or otherapplicable law.  Pledgor acknowledgesthat Collateral may be sold at a loss to Pledgor, and that, in such event, theAdministrative Agent shall have no liability or responsibility to Pledgor forsuch loss.  Pledgor further acknowledgesthat a private sale may result in prices and other terms less favorable to theseller than if such sale were a public sale and, notwithstanding suchcircumstances, agrees that no such private sale shall, to the extent permittedby applicable law, be deemed not to be “commercially reasonable” solely as aresult of such prices and other sale terms. Upon any such sale, the Administrative Agent shall have the right todeliver, assign and transfer to the buyer thereof the Collateral so sold.  Each buyer at any such sale shall hold theCollateral so sold absolutely and free from any claim or right of whatsoeverkind, including any equity or right of redemption of Pledgor that may be waivedor any other right or claim of Pledgor, and Pledgor, to the extent permitted bylaw, hereby specifically waives all rights of redemption, stay or appraisalthat Pledgor has or may have under any law now existing or hereafter adopted.

Without limiting anyother rights and remedies available to the Administrative Agent, Pledgorexpressly acknowledges and agrees that with respect to Collateral consisting ofnotes, bonds or other securities  whichare not sold on a recognized market , the Administrative Agent shall be deemedto have conducted a commercially reasonable sale of such Collateral if (a) suchsale is conducted by any nationally recognized broker-dealer (includingany affiliate of the Administrative Agent), investment banker or any othermethod common in the securities industry, and (b) if the purchaser is the AdministrativeAgent or any affiliate of the Administrative Agent, the sale price received bythe Administrative Agent in connection with such sale is reasonably supportedby quotations received from one or more other nationally recognizedbroker-dealers, investment bankers or other financial institutions.

(v)           Enforce the security interest of theAdministrative Agent in any deposit account which is part of the Collateral byapplying such account to the Indebtedness.

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(vi)          Exercise any other remedy provided underthis Agreement or by any applicable law.

(vii)         Comply with any applicable state orfederal law requirements in connection with a disposition of the Collateral andsuch compliance will not be considered to affect adversely the commercialreasonableness of any sale or other disposition of the Collateral.

(viii)        Sell the Collateral without giving anywarranties as to the Collateral.  TheAdministrative Agent may specifically disclaim any warranties of title or thelike.  This procedure will not be consideredto affect adversely the commercial reasonableness of any sale or otherdisposition of the Collateral.

8.             RIGHT TO CURE; LIMITATION ON ADMINISTRATIVE AGENT’SDUTIES.  If Pledgor fails to perform anyagreement contained herein, the Administrative Agent may perform or causeperformance of such agreement and the expenses of the Administrative Agentincurred in connection therewith shall be payable by Pledgor or Debtor underthe Section entitled “COSTS”. Any powers conferred on the Administrative Agent hereunder are solely toprotect its interest in the Collateral and shall not impose any duty upon it toexercise any such powers.  Except forreasonable care in the custody of any Collateral in its possession and the accountingfor moneys actually received by it hereunder, the Administrative Agent shallhave no duty as to any Collateral or as to the taking of any necessary steps topreserve rights against prior parties or any other rights pertaining to anyCollateral.  The Administrative Agentshall be deemed to have exercised reasonable care in the custody andpreservation of the Collateral in its possession if the Collateral is accordedtreatment substantially equal to that which the Administrative Agent accordsits own property, it being understood that the Administrative Agent shall nothave any responsibility for (a) ascertaining, exercising or taking other actionor giving Pledgor notice with respect to subscription rights, calls,conversions, exchanges, maturities, lenders or other matters relative to any Collateral,whether or not the Administrative Agent has or is deemed to have knowledge ofsuch matters, or (b) taking any necessary steps to preserve rights against anyparties with respect to any Collateral. The Administrative Agent shall not be liable for any loss to theCollateral resulting from acts of God, war, civil commotion, fire, earthquake,or other disaster or for any other loss or damage to the Collateral except tothe extent such loss is determined by a court of competent jurisdiction by finaland nonappealable judgment to have resulted from the Administrative Agent’sgross negligence or willful misconduct.

9.             WAIVERS.  TheAdministrative Agent shall be under no duty or obligation whatsoever andPledgor waives any right to require the Administrative Agent to (i) make orgive any presentment, demands for performances, notices of nonperformance,protests, notices of protest or notices of dishonor in connection with anyobligations or evidences of indebtedness held by the Administrative Agent as Collateral,or in connection with any obligation or evidences of indebtedness whichconstitute in whole or in part the Indebtedness, (ii) proceed against anyperson or entity, (iii) proceed against or exhaust any collateral, or (iv)pursue any other remedy in the Administrative Agent’s power; and Pledgor waivesany defense arising by reason of any disability or other defense of Debtor orany other person, or by reason of the cessation from any cause whatsoever ofthe liability of Debtor or any other person. Until the Indebtedness is paid in 

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full, Pledgor waives any right of subrogation,reimbursement, indemnification, and contribution (contractual, statutory orotherwise), including without limitation any claim or right of subrogationunder the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute,arising from the existence or performance of this Agreement, and Pledgor waivesany right to enforce any remedy which the Administrative Agent now has or mayhereafter have against Debtor or against any other person and waives anybenefit of and any right to participate in any Collateral or securitywhatsoever now or hereafter held by the Administrative Agent.  If Pledgor is not also a Debtor with respectto a specified Indebtedness, Pledgor authorizes the Administrative Agentwithout notice or demand and without affecting Pledgor’s liability hereunder,from time to time to:  (i) renew, extend,accelerate or otherwise change the time for payment of or otherwise change theterms of the Indebtedness or any part thereof, including increase or decreaseof the rate of interest thereon; (ii) take and hold security, other than theCollateral, for the payment of the Indebtedness or any part thereof, andexchange, enforce, waive and release the Collateral or any part thereof or anysuch other security; and (iii) release or substitute Debtor or any one or moreof them, or any of the endorsers or guarantors of the Indebtedness or any partthereof, or any other parties thereto and Pledgor consents to the taking of, orfailure to take, any action by the Administrative Agent which might in anymanner or to any extent vary the risks of Pledgor under this Agreement orwhich, but for this provision, might operate as a discharge of Pledgor.  Pledgor agrees that it is solely responsiblefor keeping itself informed as to the financial condition of Debtor and of allcircumstances which bear upon the risk of nonpayment or the risk of a margincall or liquidation of the Collateral.

10.           TRANSFER, DELIVERYAND RETURN OF COLLATERAL.

(a)           Pledgor shall immediately deliver orcause to be delivered to the Administrative Agent (or the SecuritiesIntermediary, if any) (i) any certificates or instruments now or hereafterrepresenting or evidencing Collateral and such certificates and instrumentsshall be in suitable form for transfer without restriction or stop order bydelivery, or shall be accompanied by duly executed instruments of transfer orassignment in blank in form and substance satisfactory to the AdministrativeAgent, and (ii) in the same form as received (with any necessary endorsement),all dividends and other distributions paid or payable in cash in respect of anyCollateral and any such amounts, if received by Pledgor, shall be received intrust for the benefit of the Administrative Agent and be segregated from theother property or funds of Pledgor.

(b)           The Administrative Agent may at anytime deliver the Collateral or any part thereof to Pledgor and the receipt byPledgor shall be a complete and full acquittance for the Collateral sodelivered, and the Administrative Agent shall thereafter be discharged from anyliability or responsibility therefor.

(c)           Upon the transfer of all or any partof the Indebtedness, the Administrative Agent may transfer all or any part ofthe Collateral and shall be fully discharged thereafter from all liability andresponsibility with respect to such Collateral so transferred, and thetransferee shall be vested with all the rights and powers of the AdministrativeAgent hereunder with respect to such Collateral so transferred; but withrespect to any Collateral not so transferred the Administrative Agent shallretain all rights and powers hereby given. Pledgor agrees that the Administrative Agent may disclose to 

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anyprospective purchaser or transferee and any purchaser or transferee of all orpart of the Indebtedness any and all information in the Administrative Agent’spossession concerning Pledgor, this Agreement and the Collateral.

11.           CONTINUING AGREEMENTAND POWERS.

(a)           This is a continuing Agreement andall the rights, powers and remedies hereunder shall, unless otherwise limitedherein, apply to all past, present and future Indebtedness of Debtor or any oneor more of them to the Administrative Agent and the Lenders, including thatarising under successive transactions which shall either continue theIndebtedness, increase or decrease it, or from time to time create newIndebtedness after all or any prior Indebtedness has been satisfied, andnotwithstanding the death, incapacity, cessation of business, dissolution orbankruptcy of Debtor or any one or more of them, or any other event orproceeding affecting Debtor or any one or more of them.

(b)           Until all Indebtedness shall havebeen paid in full and the Administrative Agent and the Lenders shall have noobligation to extend credit to any Debtor, the power of sale and all otherrights, powers and remedies granted to the Administrative Agent hereunder shallcontinue to exist and may be exercised by the Administrative Agent at the timespecified hereunder irrespective of the fact that the Indebtedness or any partthereof may have become barred by any statute of limitations, or that thepersonal liability of Debtor or any one or more of them may have ceased.  Pledgor waives the benefit of any statute oflimitations as applied to this Agreement.

12.           SECURITIES INTERMEDIARY.  Upon the occurrence and during thecontinuation of an Event of Default, if permitted by the Administrative Agent,some or all of the Collateral may be held at a broker or other securitiesintermediary (the “Securities Intermediary”). Pledgor shall pay to the Securities Intermediary any charges or costsimposed by the Securities Intermediary. Pledgor at no time shall request that the Securities Intermediaryrelease any Collateral to Pledgor, except as expressly permitted by theAdministrative Agent.  The AdministrativeAgent may require that Pledgor obtain a control agreement, signed by theSecurities Intermediary, in form and substance acceptable to the AdministrativeAgent.  The Administrative Agent may, atany time but in accordance with the terms of this Agreement and any controlagreement, require the Securities Intermediary to do any or all of thefollowing: (a) disburse any or all of the Collateral to the Administrative Agent;(b) allow the Administrative Agent (and not Pledgor) to exercise any rightsrelating to the Collateral; (c) sell some or all of the Collateral and remitthe sales proceeds (less the Securities Intermediary’s normal sales charge) tothe Administrative Agent; and (d) buy and sell Collateral only upon theinstructions of the Administrative Agent (and not Pledgor).  If the Administrative Agent assigns ortransfers its rights under this Agreement and the Administrative Agent is theSecurities Intermediary for any or all of the Collateral, Pledgor agrees thatthe Administrative Agent, in such capacity, is irrevocably directed by Pledgorto comply with instructions or entitlement orders with respect to suchCollateral originated by any assignee or transferee of this Agreement withoutfurther consent of Pledgor.

13.           COSTS.  All advances, charges, costs and expenses,including reasonable attorneys’ fees, incurred or paid by the AdministrativeAgent in exercising any right, power or 

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remedy conferred by this Agreement or in theenforcement thereof, and including the charges and expenses of theAdministrative Agent’s custody unit or of any Securities Intermediary, shallbecome a part of the Indebtedness secured hereunder and shall be paid to theAdministrative Agent by Debtor and Pledgor immediately and without demand, withinterest thereon at an annual rate equal to the highest rate of interest of anyIndebtedness secured by this Agreement (or, if there is no such interest rate,at the maximum interest rate permitted by law for interest on judgments).  Such costs and attorneys’ fees shall includethe allocated cost of in-house counsel to the extent permitted by law.

14.           NOTICES.  Unless otherwise provided or agreed to hereinor required by law, notice and communications provided for in this Agreementshall be in writing and shall be mailed, telecopied or delivered to Pledgor tothe address or facsimile number for notices set forth for Pledgor below oracross from its signature below or at such other address or facsimile number asshall be designated by Pledgor in a written notice to the Administrative Agentat the address for notices set forth for the Administrative Agent below oracross from the Administrative Agent’s signature below.  If Pledgor’s address or facsimile number fornotices is not entered below and Pledgor has not otherwise designated suchaddress or facsimile number to the Administrative Agent in writing, then theaddress and/or facsimile number for Pledgor in the Administrative Agent’srecords shall be deemed the address or facsimile for notices to Pledgor.  Notices and other communications sent by (a)first class mail shall be deemed delivered on the earlier of actual receipt oron 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 afterdeposit with the overnight courier, (c) facsimile shall be deemed deliveredwhen transmitted and (d) any other method, shall be deemed delivered whendelivered.  To the extent that oralnotification is provided for or agreed to herein, such oral notification may bemade by telephone to any of the number(s) set forth on the signature page forPledgor; provided that any oral notification in person or at any othertelephone number shall constitute notification hereunder.

15.           INDEMNITY.  Pledgor shall indemnify, hold harmless anddefend the Administrative Agent and its directors, officers, agents andemployees, from and against any and all claims, actions, obligations,liabilities and expenses, including defense costs, investigative fees andcosts, and legal fees and damages arising from their execution of orperformance under this Agreement or any control agreement executed by theAdministrative Agent in connection with the Collateral, except to the extentthat such claim, action, obligation, liability or expense is determined by acourt of competent jurisdiction by final and nonappealable judgment to haveresulted from the gross negligence or willful misconduct of such indemnified person.This indemnification shall survive the termination of this Agreement.

16.           MISCELLANEOUS.

(a)           This Agreement (i) may be waived,altered, modified or amended only by an instrument in writing, duly executed bythe party or parties sought to be charged or bound thereby, and (ii) may be executed in any number of identicalcounterparts, each of which shall be deemed an original for all purposes andall of which constitute, collectively, one agreement; but, in making proof ofthis Agreement, it shall not be necessary to produce or account for more thanone such counterpart.  Any waiver,express or implied, of any provision hereof and any delay or failure by theAdministrative Agent to enforce any 

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provisionshall not preclude the Administrative Agent from enforcing any such provisionthereafter.

(b)           Pledgor hereby irrevocably authorizesthe Administrative Agent to file one or more financing statements describingall or part of the Collateral, and continuation statements, or amendmentsthereto, relative to all or part of the Collateral as authorized by applicablelaw.  Such financing statements,continuation statements and amendments will contain any other informationrequired by the UCC for the sufficiency or filing office acceptance of anyfinancing statement, continuation statement or amendment, including whetherPledgor is an organization, the type of organization and any organizationalidentification number issued to Pledgor. Pledgor agrees to furnish any such information to the AdministrativeAgent promptly upon request.  Pledgoralso ratifies its authorization for the Administrative Agent to have filed anyinitial financing statement or amendments thereto filed prior to the datehereof.

(c)           From time to time, Pledgor and Debtorshall, at the request of the Administrative Agent, execute such otheragreements, documents or instruments or take any other actions in connectionwith this Agreement as the Administrative Agent may reasonably deem necessaryto evidence or perfect the security interests granted herein, to maintain thefirst priority of the security interests, or to effectuate the rights grantedto the Administrative Agent herein, but their failure to do so shall not limitor affect any security interest or any other rights of the Administrative Agentin and to the Collateral.  Pledgor willexecute and deliver to the Administrative Agent any stock powers, instructionsto any securities intermediary, issuer or transfer agent, proxies, or any otherdocuments of transfer that the Administrative Agent requests in order toperfect, obtain control or otherwise protect the Administrative Agent’ssecurity interest in the Collateral or to effect the Administrative Agent’srights under this Agreement.  Such powersor documents may be executed in blank or completed prior to execution, asrequested by the Administrative Agent.

(d)           This Agreement shall be governed byand construed according to internal laws of the State of California, to thejurisdiction of which the parties hereto submit, except as otherwise required bymandatory provisions of law and except to the extent that remedies are governedby the laws of any other jurisdiction.

(e)           Any term used or defined in the UCCand not defined herein has the meaning given to the term in the UCC, when usedin this Agreement.

(f)            This Agreement shall benefit theAdministrative Agent’s successors and assigns and shall bind Pledgor’ssuccessors and assigns, except that Pledgor may not assign its rights andobligations under this Agreement.  ThisAgreement shall bind all parties who become bound as a Debtor with respect tothe Indebtedness.

(g)           All rights and remedies hereinprovided are cumulative and not exclusive of any rights or remedies otherwiseprovided by law.  Any single or partialexercise of any right or remedy shall not preclude the further exercise of anyother right or remedy.

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(h)           In all cases where more than oneparty executes this Agreement, all words used herein in the singular shall bedeemed to have been used in the plural where the context and construction sorequire, and all obligations and undertakings hereunder of such parties arejoint and several.

(i)            The illegality, invalidity orunenforceability of any provision of this Agreement shall not in any way affector impair the legality, validity or enforceability of the remaining provisionsof this Agreement.

(j)            This Agreement and any otherdocuments executed or delivered in connection herewith constitute the entireagreement of the parties hereto with respect to the subject matter hereof andshall supersede any prior expressions of intent or understandings with respectto this transaction.

17.           FINAL AGREEMENT.  BY SIGNING THIS DOCUMENT EACH PARTYREPRESENTS AND AGREES THAT:  (A) THISDOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE 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 of the 1st day of June, 2007.

BANK OF AMERICA, N.A., as administrative agentBy:_____________________________________________ Name:___________________________________________ Title:____________________________________________ Address:Bank of America, N.A.Agency ManagementMail Code:  WA1-501-32-37800 Fifth Avenue, Floor 32Seattle, WA 98104Attention:               TiffanyShin

 
| Pledgor’s Chief Executive  Office:

400 Corporate Pointe, Suite 525

Culver City, California  90230

  | PLEDGOR:

PROSPECT MEDICAL GROUP, INC., a California  professional corporation

By:                                                                                          

Name:     Jacob  Y. Terner, M.D.****Title:       Chief Executive  Officer

** ** |
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|                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 
| Pledgor’s type of  organization:  Corporation

Pledgor’s state of incorporation or organization (if  Pledgor is a corporation, limited partnership, limited liability company or  other registered entity):  California

  | Pledgor’s organizational identification number if  any, assigned by the state of incorporation or organization  (If no organizational identification number  has been assigned enter “None”):   C1388087

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| * *                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                      |

 

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Exhibit A toPledge Agreement

Description ofCollateral

Pledged Equity:
| **Pledged Entity**                                                                          | ** ** | **Class of Stock** | ** ** | **Stock  Certificate #** | ** ** | **Number of  Shares** | ** ** | **Percentage of  Outstanding  Shares** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|
| Antelope Valley Medical  Associates, Inc., a California professional corporation                 |       | Common                       |       | 1                             |       | 1,000                      |       | 100                                         | %          |
| APAC Medical Group,  Inc., a California professional corporation                                 |       | Common                       |       | 2                             |       | 1,000                      |       | 100                                         | %          |
| Nuestra Familia Medical  Group, Inc., a California professional corporation                      |       | Common                       |       | 100                           |       | 839.02                     |       | 55.02                                       | %          |
| Pegasus Medical Group,  Inc., a California professional corporation                              |       | Common                       |       | 1                             |       | 100                        |       | 100                                         | %          |
| Prospect Health Source  Medical Group, Inc., a California professional corporation               |       | Common                       |       | 1                             |       | 50,000                     |       | 100                                         | %          |
| Prospect NWOC Medical  Group, Inc., a California professional corporation                        |       | Common                       |       | 26                            |       | 1,000                      |       | 100                                         | %          |
| Prospect Professional  Care Medical Group, Inc., a California professional corporation           |       | Common                       |       | 39                            |       | 1,000                      |       | 100                                         | %          |
| Santa Ana/Tustin  Physicians Group, Inc., a California professional corporation                  |       | Common                       |       | 2                             |       | 1,000                      |       | 100                                         | %          |
| Sierra Primary Care  Medical Group, A Medical Corporation, a California professional corporation |       | Common                       |       | 5                             |       | 1,000                      |       | 100                                         | %          |
| StarCare Medical Group,  Inc., a California professional corporation                             |       | Common                       |       | 2                             |       | 1,000                      |       | 100                                         | %          |
| Genesis Healthcare of  Southern CA                                                               |       | Common                       |       |                          |       | 1,000                      |       | 100                                         | %          |
| Prospect Physician  Associates, Inc.                                                             |       | Common                       |       | 1                             |       | 1,000                      |       | 100                                         | %          |
| Pomona Valley Medical  Group, Inc.                                                               |       | Common                       |       |                          |       | 1,000                      |       | 100                                         | %          |
| Upland Medical Group, Inc.                                                                       |       | Common                       |       |                          |       | 1,000                      |       | 100                                         | %          |

 

The Pledged Equity includesall present and future income, proceeds, earnings, increases, and substitutionsfrom or for the Collateral of every kind and nature, including withoutlimitation all payments, interest, profits, distributions, benefits, rights,options, warrants, dividends, stock dividends, stock splits, stock rights,regulatory dividends, subscriptions, monies, claims for money due and to becomedue, proceeds of any insurance on the Collateral, shares of stock of differentpar value or no par value issued in substitution or exchange for sharesincluded in the Collateral, and all other property Pledgor is entitled toreceive on account of such Collateral, including accounts, documents,instruments, chattel paper, and general intangibles.

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