**Exhibit 10.2**

 

**SECURITY AGREEMENT**

1.             THE SECURITY.  Theundersigned Prospect Medical Holdings, Inc., a Delaware corporation (“Holdings”),Prospect Medical Group, Inc., a California professional corporation (“Group”and, together with Holdings, the “Borrowers”), Antelope Valley MedicalAssociates, Inc., a California professional corporation (“Antelope”),APAC Medical Group, Inc.,  a Californiaprofessional corporation (“APAC”), Pegasus Medical Group, Inc., aCalifornia professional corporation (“Pegasus”), Prospect Health SourceMedical Group, Inc., a California professional corporation (“Prospect Health”),Prospect Medical Systems, Inc., a Delaware corporation (“PMS”), ProspectNWOC Medical Group, Inc., a California professional corporation (“ProspectNWOC”), Prospect Professional Care Medical Group, Inc., a Californiaprofessional corporation (“Prospect Professional”), Santa Ana/TustinPhysicians Group, Inc., a California professional corporation (“SantaAna/Tustin”), Sierra Medical Management, Inc., a Delaware corporation (“SMM”),Sierra Primary Care Medical Group, A Medical Corporation, a Californiaprofessional corporation (“Sierra Primary”), StarCare Medical Group.Inc., a California professional corporation (“StarCare”), NuestraFamilia Medical Group, Inc., a California professional corporation (“Nuestra”),Genesis Healthcare of Southern California, a Medical Group, a Californiaprofessional corporation (“Genesis”), Prospect Hospital AdvisoryServices, Inc., a California corporation (“PHAS”), Prospect Advantage Network,Inc., a California corporation (“PAN”), Prospect Health CareAdministrators, a California corporation (“PHCA”), ProMed HealthServices Company, a California corporation (“PHS”), Prospect PhysicianAssociates, Inc., a California professional corporation (“Prospect Physician”),Pomona Valley Medical Group, Inc., a California professional corporation (“PomonaValley”), and Upland Medical Group, A Professional Medical Corporation, aCalifornia professional corporation (“Upland”) (the Borrowers, Antelope,APAC, Pegasus, Prospect Health, PMS, Prospect NWOC, Prospect Professional,Santa Ana/Tustin, SMM, Sierra Primary, StarCare, Nuestra, PHAS, PAN, PHS,Prospect Physician, Pomona Valley and Upland, collectively, the “Pledgor”)hereby assigns and grants to Bank of America, N.A., as administrative agent(the “Administrative Agent”), for the benefit of the AdministrativeAgent and the Lenders (as defined below), a security interest in the followingdescribed property now owned or hereafter acquired by the Pledgor (“Collateral”):

(a)           All accounts, contract rights,chattel paper, instruments, deposit accounts, letter of credit rights, paymentintangibles and general intangibles, including all amounts due to the Pledgorfrom a factor; rights to payment of money from the Administrative Agent or anyLender under any Swap Contract (as defined in Paragraph 2 below); and allreturned or repossessed goods which, on sale or lease, resulted in an accountor chattel paper.

(b)           All inventory, including allmaterials, work in process and finished goods.

(c)           All machinery, furniture, fixturesand other equipment of every type now owned or hereafter acquired by thePledgor, (including, but not limited to, the equipment described in theattached Equipment Description, if any).

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(d)           All of the Pledgor’s deposit accountswith the Administrative Agent or any Lender. The Collateral shall include anyrenewals or rollovers of the deposit accounts, any successor accounts, and anygeneral intangibles and choses in action arising therefrom or related thereto.

(e)           All instruments, notes, chattelpaper, documents, certificates of deposit, securities and investment propertyof every type.  The Collateral shallinclude all liens, security agreements, leases and other contracts securing orotherwise relating to the foregoing.

(f)            All general intangibles, including,but not limited to, (i) all patents, and all unpatented or unpatentableinventions; (ii) all trademarks, service marks, and trade names; (iii) allcopyrights and literary rights; (iv) all computer software programs; (v) allmask works of semiconductor chip products; (vi) all trade secrets, proprietaryinformation, customer lists, manufacturing, engineering and production plans,drawings, specifications, processes and systems.  The Collateral shall include all good willconnected with or symbolized by any of such general intangibles; all contractrights, documents, applications, licenses, materials and other matters relatedto such general intangibles; all tangible property embodying or incorporatingany such general intangibles; and all chattel paper and instruments relating tosuch general intangibles.

(g)           All negotiable and nonnegotiabledocuments of title covering any Collateral.

(h)           All accessions, attachments and otheradditions to the Collateral, and all tools, parts and equipment used inconnection with the Collateral.

(i)            All substitutes or replacements forany Collateral, all cash or non-cash proceeds, product, rents and profits ofany Collateral, all income, benefits and property receivable on account of theCollateral, all rights under warranties and insurance contracts, letters ofcredit, guaranties or other supporting obligations covering the Collateral, andany causes of action relating to the Collateral.

(j)            All books and records pertaining toany Collateral, including but not limited to any computer-readable memory andany computer hardware or software necessary to process such memory (“Booksand Records”).

2.             THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of the Pledgorto the Administrative Agent and the Lenders. Each party obligated under any Indebtedness is referred to in thisAgreement as a “Debtor.”  “Indebtedness”means all debts, obligations or liabilities now or hereafter existing, absoluteor contingent of the Debtor or any one or more of them to the AdministrativeAgent or any Lender, whether voluntary or involuntary, whether due or not due,or whether incurred directly or indirectly or acquired by the AdministrativeAgent or such Lender by assignment or otherwise.  Indebtedness shall include, withoutlimitation, (i) all debts, obligations or liabilities to the AdministrativeAgent or any Lender, now or hereafter existing or incurred whether absolute orcontingent, arising under that certain Credit Agreement dated of even dateherewith among Prospect Medical Holdings, Inc., 

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Prospect Medical Group, Inc., the Administrative Agentand the other financial 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) and (ii) all obligations of the Debtor arising under any SwapContract.  “Swap Contract” means anyinterest rate, credit, commodity or equity swap, cap, floor, collar, forwardforeign exchange transaction, currency swap, cross currency rate swap, currencyoption, securities puts, calls, collars, options or forwards or any combinationof, or option with respect to, these or similar transactions now or hereafterentered into between the Debtor and the Administrative Agent or any Lender.

3.             PLEDGOR’S COVENANTS. The Pledgor represents, covenants and warrants that unless compliance iswaived by the Administrative Agent in writing:

(a)           The Pledgor will properly preservethe Collateral; defend the Collateral against any adverse claims and demands;and keep accurate Books and Records.

(b)           The Pledgor’s chief executive officeis located, in the state specified on the signature page hereof.  In addition, the Pledgor, is incorporated inor organized under the laws of the state specified on such signature page.  The Pledgor shall give the AdministrativeAgent at least thirty (30) days notice before changing its chief executiveoffice or state of incorporation or organization.  The Pledgor will notify the AdministrativeAgent in writing prior to any change in the location of any Collateral,including the Books and Records.

(c)           The Pledgor will notify theAdministrative Agent in writing prior to any change in the Pledgor’s name,identity or business structure.

(d)           Unless otherwise agreed, the Pledgorhas not granted and will not grant any security interest in any of theCollateral except to the Administrative Agent, and will keep the Collateralfree of all liens, claims, security interests and encumbrances of any kind ornature except the security interest of the Administrative Agent; providedthat PHAS may pledge its shares of Brotman Medical Center in favor of a lenderof Brotman Medical Center.

(e)           The Pledgor will promptly notify theAdministrative Agent in writing of any event which affects the value of theCollateral, the ability of the Pledgor or the Administrative Agent to disposeof the Collateral, or the rights and remedies of the Administrative Agent inrelation thereto, including, but not limited to, the levy of any legal processagainst any Collateral and the adoption of any marketing order, arrangement orprocedure affecting the Collateral, whether governmental or otherwise.

(f)            The Pledgor shall pay all costsnecessary to preserve, defend, enforce and collect the Collateral, includingbut not limited to taxes, assessments, insurance premiums, repairs, rent,storage costs and expenses of sales, and any costs to perfect theAdministrative Agent’s security interest (collectively, the “CollateralCosts”).  Without waiving the Pledgor’sdefault for failure to make any such payment, the Administrative 

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Agent at its option maypay any such Collateral Costs, and discharge encumbrances on the Collateral,and such Collateral Costs payments shall be a part of the Indebtedness and bearinterest at the rate set out in the Indebtedness.  The Pledgor agrees to reimburse theAdministrative Agent on demand for any Collateral Costs so incurred.

(g)           Until the Administrative Agentexercises its rights to make collection, the Pledgor will diligently collectall Collateral.

(h)           If any Collateral is or becomes thesubject of any registration certificate, certificate of deposit or negotiabledocument of title, including any warehouse receipt or bill of lading, thePledgor shall immediately deliver such document to the Administrative Agent,together with any necessary endorsements.

(i)            The Pledgor will not sell, lease,agree to sell or lease, or otherwise dispose of any Collateral except with theprior written consent of the Administrative Agent; provided, however,that the Pledgor may sell inventory in the ordinary course of business.

(j)            The Pledgor will maintain and keepin force insurance covering the Collateral against fire and extended coverages,to the extent that any Collateral is of a type which can be so insured.  Such insurance shall require losses to bepaid on a replacement cost basis, be issued by insurance companies acceptableto the Administrative Agent and include a loss payable endorsement in favor ofthe Administrative Agent in a form acceptable to the Administrative Agent.  Upon the request of the Administrative Agent,the Pledgor will deliver to the Administrative Agent a copy of each insurancepolicy, or, if permitted by the Administrative Agent, a certificate ofinsurance listing all insurance in force.

(k)           The Pledgor will not attach anyCollateral to any real property or fixture in a manner which might cause suchCollateral to become a part thereof unless the Pledgor first obtains thewritten consent of any owner, holder of any lien on the real property orfixture, or other person having an interest in such property to the removal bythe Administrative Agent of the Collateral from such real property orfixture.  Such written consent shall bein form and substance acceptable to the Administrative Agent and shall providethat the Administrative Agent has no liability to such owner, holder of anylien, or any other person.

(l)            Exhibit A to this Agreement is acomplete list of all patents, trademark and service mark registrations,copyright registrations, mask work registrations, and all applicationstherefor, in which the Pledgor has any right, title, or interest, throughoutthe world. To the extent required by the Administrative Agent in its discretion, the Pledgor willpromptly notify the Administrative Agent of any acquisition (by adoption anduse, purchase, license or otherwise) of any patent, trademark or service markregistration, copyright registration, mask work registration, and applicationstherefor, and unregistered trademarks and service marks and copyrights,throughout the world, which are granted or filed or acquired after the datehereof or which are not listed on the Exhibit.  The Pledgor authorizes theAdministrative Agent, without notice to the Pledgor, to modify this Agreementby amending the Exhibit to include any such Collateral.

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(m)          The Pledgor will, at its expense,diligently prosecute all patent, trademark or service mark or copyrightapplications pending on or after the date hereof, will maintain in effect allissued patents and will renew all trademark and service mark registrations,including payment of any and all maintenance and renewal fees relating thereto,except for such patents, service marks and trademarks that are being sold,donated or abandoned by the Pledgor pursuant to the terms of its intellectualproperty management program.  The Pledgor also will promptly makeapplication on any patentable but unpatented inventions, registerable butunregistered trademarks and service marks, and copyrightable but uncopyrightedworks. The Pledgor will at its expense protect and defend all rights inthe Collateral against any material claims and demands of all persons otherthan the Administrative Agent and will, at its expense, enforce all rights inthe Collateral against any and all infringers of the Collateral where suchinfringement would materially impair the value or use of the Collateral to thePledgor or the Administrative Agent.  The Pledgor will not license ortransfer any of the Collateral, except for such licenses as are customary inthe ordinary course of the Pledgor’s business, or except with theAdministrative Agent’s prior written consent.

4.             ADDITIONAL OPTIONAL REQUIREMENTS.  The Pledgor agrees thatthe Administrative Agent may at its option at any time, whether or not thePledgor is in default:

(a)           Require the Pledgor to deliver to theAdministrative Agent (i) copies of or extracts from the Books and Records, and(ii) information on any contracts or other matters affecting the Collateral.

(b)           Examine the Collateral, including theBooks and Records, and make copies of or extracts from the Books and Records,and for such purposes enter at any reasonable time upon the property where anyCollateral or any Books and Records are located.

(c)           Require the Pledgor to deliver to theAdministrative Agent any instruments, chattel paper or letters of credit whichare part of the Collateral, and to assign to the Administrative Agent theproceeds of any such letters of credit.

(d)           Notify any account debtors, anybuyers of the Collateral, or any other persons of the Administrative Agent’sinterest in the Collateral.

5.             DEFAULTS.  Any oneor more of the following shall be a default hereunder:

(a)           Any Indebtedness is not paid whendue, or any default occurs under any agreement relating to the Indebtedness,after giving effect to any applicable grace or cure periods.

(b)           ThePledgor breaches any term, provision, warranty or representation under thisAgreement, or under any other obligation of the Pledgor to the Administrative Agentor any Lender, and such breach remains uncured after any applicable cureperiod.

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(c)           The Administrative Agent fails tohave an enforceable first lien (except for any prior liens to which theAdministrative Agent has consented in writing) on or security interest in theCollateral.

(d)           Any custodian, receiver or trustee isappointed to take possession, custody or control of all or a substantialportion of the property of the Pledgor or of any guarantor or other partyobligated under any Indebtedness.

(e)           ThePledgor or any guarantor or other party obligated under any Indebtednessbecomes insolvent, or is generally not paying or admits in writing itsinability to pay its debts as they become due, fails in business, makes ageneral assignment for the benefit of creditors, dies, or commences any case,proceeding or other action under any bankruptcy or other law for the relief of,or relating to, debtors.

(f)            Any case, proceeding or other actionis commenced against the Pledgor or any guarantor or other party obligatedunder any Indebtedness under any bankruptcy or other law for the relief of, orrelating to, debtors.

(g)           Any involuntary lien of any kind orcharacter attaches to any Collateral, except for liens for taxes not yet due.

(h)           The Pledgor has given theAdministrative Agent any false or misleading information or representations.

6.             ADMINISTRATIVE AGENT’S REMEDIES AFTER DEFAULT.  In the event of any default, theAdministrative Agent may do any one or more of the following:

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

(b)           Enforce the security interest givenhereunder pursuant to the Uniform Commercial Code and any other applicable law.

(c)           Enforce the security interest of theAdministrative Agent in any deposit account of the Pledgor maintained with theAdministrative Agent or any Lender by applying such account to theIndebtedness.

(d)           Require the Pledgor to obtain theAdministrative Agent’s prior written consent to any sale, lease, agreement tosell or lease, or other disposition of any Collateral consisting of inventory.

(e)           Require the Pledgor to segregate allcollections and proceeds of the Collateral so that they are capable ofidentification and deliver daily such collections and proceeds to theAdministrative Agent in kind.

(f)            Require the Pledgor to direct allaccount debtors to forward all payments and proceeds of the Collateral to apost office box under the Administrative Agent’s exclusive control.

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(g)           Require the Pledgor to assemble theCollateral, including the Books and Records, and make them available to theAdministrative Agent at a place designated by the Administrative Agent.

(h)           Enter upon the property where anyCollateral, including any Books and Records, are located and take possession ofsuch Collateral and such Books and Records, and use such property (includingany buildings and facilities) and any of the Pledgor’s equipment, if theAdministrative Agent deems such use necessary or advisable in order to takepossession of, hold, preserve, process, assemble, prepare for sale or lease,market for sale or lease, sell or lease, or otherwise dispose of, anyCollateral.

(i)            Demand and collect any payments onand proceeds of the Collateral.  Inconnection therewith the Pledgor irrevocably authorizes the AdministrativeAgent to endorse or sign the Pledgor’s name on all checks, drafts, collections,receipts and other documents, and to take possession of and open the mailaddressed to the Pledgor and remove therefrom any payments and proceeds of theCollateral.

(j)            Grant extensions and compromise orsettle claims with respect to the Collateral for less than face value, allwithout prior notice to the Pledgor.

(k)           Use or transfer any of the Pledgor’srights and interests in any Intellectual Property now owned or hereafteracquired by the Pledgor, if the Administrative Agent deems such use or transfernecessary or advisable in order to take possession of, hold, preserve, process,assemble, prepare for sale or lease, market for sale or lease, sell or lease,or otherwise dispose of, any Collateral.  The Pledgor agrees that any such useor transfer shall be without any additional consideration to the Pledgor.  As used in this paragraph, “IntellectualProperty” includes, but is not limited to, all trade secrets, computersoftware, service marks, trademarks, trade names, trade styles, copyrights,patents, applications for any of the foregoing, customer lists, workingdrawings, instructional manuals, and rights in processes for technicalmanufacturing, packaging and labeling, in which the Pledgor has any right orinterest, whether by ownership, license, contract or otherwise.

(l)            Have a receiver appointed by anycourt of competent jurisdiction to take possession of the Collateral.  ThePledgor hereby consents to the appointment of such a receiver and agrees not tooppose any such appointment.

(m)          Take such measures as theAdministrative Agent may deem necessary or advisable to take possession of,hold, preserve, process, assemble, insure, prepare for sale or lease, marketfor sale or lease, sell or lease, or otherwise dispose of, any Collateral, andthe Pledgor hereby irrevocably constitutes and appoints the AdministrativeAgent as the Pledgor’s attorney-in-fact to perform all acts and execute alldocuments in connection therewith.

(n)           Without notice or demand to thePledgor, set off and apply against any and all of the Indebtedness any and alldeposits (general or special, time or demand, provisional or final) and anyother indebtedness, at any time held or owing by the 

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Administrative Agent, anyLender or any of their respective agents or affiliates to or for the credit ofthe account of the Pledgor or any guarantor or endorser of the Pledgor’sIndebtedness.

(o)           Exercise any other remedies availableto the Administrative Agent at law or in equity.

(p)           ThePledgor waives all rights and defenses that the Pledgor may have because any ofthe Indebtedness is secured by real property. This means, among other things: (i) the Administrative Agent may enforce this Agreement without firstforeclosing on any real or personal property collateral pledged by the Debtors;and (ii) if the Administrative Agent forecloses on any real property collateralpledged by the Debtors:  (1) the amountof the Indebtedness may be reduced only by the price for which that collateralis sold at the foreclosure sale, even if the collateral is worth more than thesale price, and (2) the Administrative Agent may enforce this Agreement even ifthe Administrative Agent, by foreclosing on the real property collateral, hasdestroyed any right the Pledgor may have to collect from the Debtors.  This is an unconditional and irrevocablewaiver of any rights and defenses the Pledgor may have because any of theIndebtedness is secured by real property. These rights and defenses include, but are not limited to, any rights ordefenses based upon Section 580a, 580b, 580d, or 726 of the California Code ofCivil Procedure.  The Pledgor waives any right ordefense it may have at law or equity, including California Code of CivilProcedure Section 580a, to a fair market value hearing or action to determine adeficiency judgment after a foreclosure.  The Pledgor waives any rights anddefenses that are or may become available to the Pledgor by reason of Sections2787 to 2855 inclusive, of the California Civil Code.

7.             ADMINISTRATIVEAGENT APPOINTED ATTORNEY IN FACT.  Uponthe occurrence and during the continuation of an Event of Default, Pledgorauthorizes and irrevocably appoints the Administrative Agent as Pledgor’s trueand lawful attorney-in-fact with full power of substitution to take any actionand execute or otherwise authenticate any record or other documentation thatthe Administrative Agent considers necessary or advisable to accomplish thepurposes of this Agreement, including but not limited to, the followingactions: (a) to endorse, receive, accept and collect all checks, drafts, otherpayment orders and instruments representing or included in the Collateral orrepresenting any payment, dividend or distribution relating to any Collateralor to take any other action to enforce, collect or compromise any of theCollateral; (b) to transfer any Collateral (including converting physicalcertificates to book-entry holdings) into the name of the Administrative Agentor its nominee or any broker-dealer (which may be an affiliate of theAdministrative Agent) and to execute any control agreement covering anyCollateral on Pledgor’s behalf and as attorney-in-fact for Pledgor in order toperfect the Administrative Agent’s first priority and continuing securityinterest in the Collateral and in order to provide the Administrative Agentwith control of the Collateral, and Pledgor’s signature on this Agreement orother authentication of this Agreement shall constitute an irrevocable directionby Pledgor to any bank, custodian, broker dealer, any other securitiesintermediary or commodity intermediary holding any Collateral or any issuer ofany letters of credit to comply with any instructions or entitlement orders, ofthe Administrative Agent without further consent of Pledgor; (c) to participatein any recapitalization, reclassification, reorganization, consolidation,redemption, stock split, merger or liquidation of any issuer of 

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securities whichconstitute Collateral, and in connection therewith the Administrative Agent maydeposit or surrender control of the Collateral, accept money or other propertyin exchange for the Collateral, and take such action as it deems proper inconnection therewith, and any money or property received on account of or inexchange for the Collateral shall be applied to the Indebtedness or held by theAdministrative Agent thereafter as Collateral pursuant to the provisionshereof; (d)  to exercise any right,privilege or option pertaining to any Collateral, but the Administrative Agenthas no obligation to do so; (e) to file any claims, take any actions orinstitute any proceedings which the Administrative Agent determines to benecessary or appropriate to collect or preserve the Collateral or to enforce theAdministrative Agent’s rights with respect to the Collateral; (f) to execute inthe name or otherwise authenticate on behalf of Pledgor any record reasonablybelieved necessary or appropriate by the Administrative Agent for compliancewith laws, rules or regulations applicable to any Collateral, or in connectionwith exercising the Administrative Agent’s rights under this Agreement; (g) tofile any financing statement relating to this Agreement electronically, and theAdministrative Agent’s transmission of Pledgor’s signature on andauthentication of the financing statement shall constitute Pledgor’s signatureon and authentication of the financing statement; (h) to make any compromise orsettlement it deems desirable or proper with reference to the Collateral; (i)to do and take any and all actions with respect to the Collateral and toperform any of Pledgor’s obligations under this Agreement; and (j) to executeany documentation reasonably believed necessary by the Administrative Agent forcompliance with Rule 144 or any other restrictions, laws, rules or regulationsapplicable to any Collateral hereunder that constitutes restricted or controlsecurities under the securities laws. The foregoing appointments are irrevocable and coupled with an interestand shall survive the death or disability of Pledgor and shall not be revokedwithout the Administrative Agent’s written consent.  To the extent permitted by law, Pledgorhereby ratifies all said attorney-in-fact shall lawfully do by virtue hereof.

8.             MISCELLANEOUS.

(a)           Any waiver, express or implied, ofany provision hereunder and any delay or failure by the Administrative Agent toenforce any provision shall not preclude the Administrative Agent fromenforcing any such provision thereafter.

(b)           ThePledgor shall, at the request of the Administrative Agent, execute such otheragreements, documents, instruments, or financing statements in connection withthis Agreement as the Administrative Agent may reasonably deem necessary.

(c)           All notes, security agreements,subordination agreements and other documents executed by the Pledgor orfurnished to the Administrative Agent in connection with this Agreement must bein form and substance satisfactory to the Administrative Agent.

(d)           This Agreement shall be governed byand construed according to the laws of the State of California, to thejurisdiction of which the parties hereto submit.

(e)           All rights and remedies hereinprovided are cumulative and not exclusive of any rights or remedies otherwiseprovided by law.  Any single or partialexercise of 

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any right or remedy shallnot preclude the further exercise thereof or the exercise of any other right orremedy.

(f)            All terms not defined herein areused as set forth in the Uniform Commercial Code.

(g)           In the event of any action by theAdministrative Agent to enforce this Agreement or to protect the securityinterest of the Administrative Agent in the Collateral, or to take possessionof, hold, preserve, process, assemble, insure, prepare for sale or lease,market for sale or lease, sell or lease, or otherwise dispose of, anyCollateral, the Pledgor agrees to pay immediately the costs and expensesthereof, together with reasonable attorney’s fees and allocated costs forin-house legal services to the extent permitted by law.

(h)           In the event the Administrative Agentseeks to take possession of any or all of the Collateral by judicial process,the Pledgor hereby irrevocably waives any bonds and any surety or securityrelating thereto that may be required by applicable law as an incident to suchpossession, and waives any demand for possession prior to the commencement ofany such suit or action.

(i)            This Agreement shall constitute acontinuing agreement, applying to all future as well as existing transactions,whether or not of the character contemplated at the date of this Agreement, andif all transactions among the Administrative Agent, the Lenders and the Pledgorshall be closed at any time, shall be equally applicable to any newtransactions thereafter.

(j)            TheAdministrative Agent’s rights hereunder shall inure to the benefit of itssuccessors and assigns.  In the event ofany assignment or transfer by the Administrative Agent or any Lender of any ofthe Indebtedness or the Collateral, the Administrative Agent or such Lenderthereafter shall be fully discharged from any responsibility with respect tothe Collateral so assigned or transferred, but the Administrative Agent or suchLender shall retain all rights and powers hereby given with respect to any ofthe Indebtedness or the Collateral not so assigned or transferred.  All representations, warranties andagreements of the Pledgor if more than one are joint and several and all shallbe binding upon the personal representatives, heirs, successors and assigns ofthe Pledgor.

9.             FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT:  (A) THIS DOCUMENT REPRESENTS THE FINALAGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B)THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTENOUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESSSUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS ANDCONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORALAGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE 

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CONTRADICTED BY EVIDENCE OF ANY PRIOR,CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THEPARTIES.

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Executed as ofthis 1st day of June, 2007.
|        | BANK OF AMERICA, N.A., as  administrative agent                                                                                                                                                                                                      |
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|   |                                                                                                                                                                                                                                                 |   |
|   | By:                                                                                                                                                                                                                                                  |   |
|   | Name:                                                                                                                                                                                                                                                |   |
|   | Title:                                                                                                                                                                                                                                               |   |
|   |                                                                                                                                                                                                                                                 |   |
|   | Address for Notices:  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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|        | PLEDGORS:

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  MEDICAL GROUP, INC., a California professional corporation

PROSPECT  MEDICAL HOLDINGS, INC., a Delaware 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 |
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|   | By:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|   | Name:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Jacob Y. Terner, M.D. |
|   | Title:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Chief Executive Officer |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|   | PROSPECT MEDICAL SYSTEMS, INC., a Delaware  corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | By:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|   | Name:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | R. Stewart Kahn |
|   | Title:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Executive Vice President |

 

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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 |

 

Pledgors’ chief executive office:

400 Corporate Pointe, Suite 525

Culver City, California  90230

Attn:      Chief Executive Officer

14

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EXHIBITA

INTELLECTUALPROPERTY

**Trademark Name:****PROSPECT MEDICAL**

(WORDS ONLY)

**SerialNumber:** 73900177

**OfficialStatus:** REGISTERED

**StatusDate:** August 09, 2004

**Goods/Services:** HEALTH CARE SERVICES

**InternationalClass:**   42 (MISCELLANEOUS SERVICES) - PRIMARY CLASS

**U.S.Class:**  100 (MISCELLANEOUS SERVICE MARKS) - SECONDARY CLASS

**State ofRegistration:** CALIFORNIA

**RegistrationNumber:** 059516

**RegistrationDate:** August 09, 2004

**Active/Inactive:**ACTIVE

**FirstUse Date:** July, 1996

**MarkType:** SERVICE MARK

**Word Count:**2

***************************OWNERSHIP INFORMATION ***************************

**Owner:****PROSPECT MEDICAL** HOLDINGS, INC.(DELAWARE CORPORATION)       6083 BRISTOL PARKWAY, SUITE 100       CULVER CITY, CA 90230       AS OF August 09, 2004

**Registrant:****PROSPECT MEDICAL** HOLDINGS, INC.(DELAWARE CORPORATION)            6083BRISTOL PARKWAY, SUITE 100            CULVERCITY, CA 90230            AS OFAugust 09, 2004 

1

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**TrademarkName:****PROSPECT MEDICAL**

(WORDS ONLY)

**SerialNumber:** 73900174

**OfficialStatus:** REGISTERED

**StatusDate:** August 09, 2004

**Goods/Services:** BUSINESS MANAGEMENT SERVICES FOR ORGANIZATIONS PROVIDING HEALTH CARE SERVICES

**InternationalClass:**   35 (ADVERTISING AND BUSINESS SERVICES) - PRIMARY CLASS 42 (MISCELLANEOUS SERVICES)

**U.S.Class:**  100 (MISCELLANEOUS SERVICE MARKS) - SECONDARY CLASS101 (ADVERTISING AND BUSINESS SERVICES)

**State ofRegistration:** CALIFORNIA

**RegistrationNumber:** 059513

**RegistrationDate:** August 09, 2004

**Active/Inactive:**ACTIVE

**FirstUse Date:** July, 1996

**Disclaimer:**MEDICAL

**MarkType:** SERVICE MARK

**WordCount:** 2

***************************OWNERSHIP INFORMATION ***************************

**Owner:****PROSPECT MEDICAL** HOLDINGS, INC.(DELAWARE CORPORATION)       6083 BRISTOL PARKWAY, SUITE 100       CULVER CITY, CA 90230       AS OF August 09, 2004

**Registrant:****PROSPECT MEDICAL** HOLDINGS, INC.(DELAWARE CORPORATION)            6083BRISTOL PARKWAY, SUITE 100            CULVERCITY, CA 90230            AS OFAugust 09, 2004

2

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