Document:

Exhibit 10.2

 

SECURITY AGREEMENT

1.             THE SECURITY.  The
undersigned 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 Medical
Associates, Inc., a California professional corporation (“Antelope”),
APAC Medical Group, Inc.,  a California
professional corporation (“APAC”), Pegasus Medical Group, Inc., a
California professional corporation (“Pegasus”), Prospect Health Source
Medical Group, Inc., a California professional corporation (“Prospect Health”),
Prospect Medical Systems, Inc., a Delaware corporation (“PMS”), Prospect
NWOC Medical Group, Inc., a California professional corporation (“Prospect
NWOC”), Prospect Professional Care Medical Group, Inc., a California
professional corporation (“Prospect Professional”), Santa Ana/Tustin
Physicians Group, Inc., a California professional corporation (“Santa
Ana/Tustin”), Sierra Medical Management, Inc., a Delaware corporation (“SMM”),
Sierra Primary Care Medical Group, A Medical Corporation, a California
professional corporation (“Sierra Primary”), StarCare Medical Group.
Inc., a California professional corporation (“StarCare”), Nuestra
Familia Medical Group, Inc., a California professional corporation (“Nuestra”),
Genesis Healthcare of Southern California, a Medical Group, a California
professional corporation (“Genesis”), Prospect Hospital Advisory
Services, Inc., a California corporation (“PHAS”), Prospect Advantage Network,
Inc., a California corporation (“PAN”), Prospect Health Care
Administrators, a California corporation (“PHCA”), ProMed Health
Services Company, a California corporation (“PHS”), Prospect Physician
Associates, Inc., a California professional corporation (“Prospect Physician”),
Pomona Valley Medical Group, Inc., a California professional corporation (“Pomona
Valley”), and Upland Medical Group, A Professional Medical Corporation, a
California 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 Administrative
Agent and the Lenders (as defined below), a security interest in the following
described property now owned or hereafter acquired by the Pledgor (“Collateral”):

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

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

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

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

(e)           All instruments, notes, chattel
paper, documents, certificates of deposit, securities and investment property
of every type.  The Collateral shall
include all liens, security agreements, leases and other contracts securing or
otherwise relating to the foregoing.

(f)            All general intangibles, including,
but not limited to, (i) all patents, and all unpatented or unpatentable
inventions; (ii) all trademarks, service marks, and trade names; (iii) all
copyrights and literary rights; (iv) all computer software programs; (v) all
mask works of semiconductor chip products; (vi) all trade secrets, proprietary
information, customer lists, manufacturing, engineering and production plans,
drawings, specifications, processes and systems.  The Collateral shall include all good will
connected with or symbolized by any of such general intangibles; all contract
rights, documents, applications, licenses, materials and other matters related
to such general intangibles; all tangible property embodying or incorporating
any such general intangibles; and all chattel paper and instruments relating to
such general intangibles.

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

(h)           All accessions, attachments and other
additions to the Collateral, and all tools, parts and equipment used in
connection with the Collateral.

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

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

2.             THE INDEBTEDNESS. 
The Collateral secures and will secure all Indebtedness of the Pledgor
to the Administrative Agent and the Lenders. 
Each party obligated under any Indebtedness is referred to in this
Agreement as a “Debtor.”  “Indebtedness”
means all debts, obligations or liabilities now or hereafter existing, absolute
or contingent of the Debtor or any one or more of them to the Administrative
Agent or any Lender, whether voluntary or involuntary, whether due or not due,
or whether incurred directly or indirectly or acquired by the Administrative
Agent or such Lender by assignment or otherwise.  Indebtedness shall include, without
limitation, (i) all debts, obligations or liabilities to the Administrative
Agent or any Lender, now or hereafter existing or incurred whether absolute or
contingent, arising under that certain Credit Agreement dated of even date
herewith among Prospect Medical Holdings, Inc., 

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Prospect Medical Group, Inc., the Administrative Agent
and the other financial institutions from time to time party thereto (the “Lenders”)
(the “Credit Agreement”) and all other instruments, documents and
agreements of every kind and nature now or hereafter executed in connection
with the Credit Agreement (including all renewals, increases, extensions,
restatements and replacements thereof and amendments and modifications of any
of the foregoing) and (ii) all obligations of the Debtor arising under any Swap
Contract.  “Swap Contract” means any
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, securities puts, calls, collars, options or forwards or any combination
of, or option with respect to, these or similar transactions now or hereafter
entered into between the Debtor and the Administrative Agent or any Lender.

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

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

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

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

(d)           Unless otherwise agreed, the Pledgor
has not granted and will not grant any security interest in any of the
Collateral except to the Administrative Agent, and will keep the Collateral
free of all liens, claims, security interests and encumbrances of any kind or
nature except the security interest of the Administrative Agent; provided
that PHAS may pledge its shares of Brotman Medical Center in favor of a lender
of Brotman Medical Center.

(e)           The Pledgor will promptly notify the
Administrative Agent in writing of any event which affects the value of the
Collateral, the ability of the Pledgor or the Administrative Agent to dispose
of the Collateral, or the rights and remedies of the Administrative Agent in
relation thereto, including, but not limited to, the levy of any legal process
against any Collateral and the adoption of any marketing order, arrangement or
procedure affecting the Collateral, whether governmental or otherwise.

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

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

(g)           Until the Administrative Agent
exercises its rights to make collection, the Pledgor will diligently collect
all Collateral.

(h)           If any Collateral is or becomes the
subject of any registration certificate, certificate of deposit or negotiable
document of title, including any warehouse receipt or bill of lading, the
Pledgor 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 the
prior 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 keep
in 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 be
paid on a replacement cost basis, be issued by insurance companies acceptable
to the Administrative Agent and include a loss payable endorsement in favor of
the 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 insurance
policy, or, if permitted by the Administrative Agent, a certificate of
insurance listing all insurance in force.

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

(l)            Exhibit A to this Agreement is a
complete list of all patents, trademark and service mark registrations,
copyright registrations, mask work registrations, and all applications
therefor, in which the Pledgor has any right, title, or interest, throughout
the world. 
To the extent required by the Administrative Agent in its discretion, the Pledgor will
promptly notify the Administrative Agent of any acquisition (by adoption and
use, purchase, license or otherwise) of any patent, trademark or service mark
registration, copyright registration, mask work registration, and applications
therefor, and unregistered trademarks and service marks and copyrights,
throughout the world, which are granted or filed or acquired after the date
hereof or which are not listed on the Exhibit.  The Pledgor authorizes the
Administrative Agent, without notice to the Pledgor, to modify this Agreement
by 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 copyright
applications pending on or after the date hereof, will maintain in effect all
issued 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 intellectual
property management program.  The Pledgor also will promptly make
application on any patentable but unpatented inventions, registerable but
unregistered trademarks and service marks, and copyrightable but uncopyrighted
works. 
The Pledgor will at its expense protect and defend all rights in
the Collateral against any material claims and demands of all persons other
than the Administrative Agent and will, at its expense, enforce all rights in
the Collateral against any and all infringers of the Collateral where such
infringement would materially impair the value or use of the Collateral to the
Pledgor or the Administrative Agent.  The Pledgor will not license or
transfer any of the Collateral, except for such licenses as are customary in
the ordinary course of the Pledgor’s business, or except with the
Administrative Agent’s prior written consent.

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

(a)           Require the Pledgor to deliver to the
Administrative 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 the
Books 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 any
Collateral or any Books and Records are located.

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

(d)           Notify any account debtors, any
buyers of the Collateral, or any other persons of the Administrative Agent’s
interest in the Collateral.

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

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

(b)           The
Pledgor breaches any term, provision, warranty or representation under this
Agreement, or under any other obligation of the Pledgor to the Administrative Agent
or any Lender, and such breach remains uncured after any applicable cure
period.

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

(d)           Any custodian, receiver or trustee is
appointed to take possession, custody or control of all or a substantial
portion of the property of the Pledgor or of any guarantor or other party
obligated under any Indebtedness.

(e)           The
Pledgor or any guarantor or other party obligated under any Indebtedness
becomes insolvent, or is generally not paying or admits in writing its
inability to pay its debts as they become due, fails in business, makes a
general 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 action
is commenced against the Pledgor or any guarantor or other party obligated
under any Indebtedness under any bankruptcy or other law for the relief of, or
relating to, debtors.

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

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

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

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

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

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

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

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

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

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

(h)           Enter upon the property where any
Collateral, including any Books and Records, are located and take possession of
such Collateral and such Books and Records, and use such property (including
any buildings and facilities) and any of the Pledgor’s equipment, if the
Administrative Agent deems such use necessary 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.

(i)            Demand and collect any payments on
and proceeds of the Collateral.  In
connection therewith the Pledgor irrevocably authorizes the Administrative
Agent 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 mail
addressed to the Pledgor and remove therefrom any payments and proceeds of the
Collateral.

(j)            Grant extensions and compromise or
settle claims with respect to the Collateral for less than face value, all
without prior notice to the Pledgor.

(k)           Use or transfer any of the Pledgor’s
rights and interests in any Intellectual Property now owned or hereafter
acquired by the Pledgor, if the Administrative Agent deems such use or transfer
necessary 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 use
or transfer shall be without any additional consideration to the Pledgor.  As used in this paragraph, “Intellectual
Property” includes, but is not limited to, all trade secrets, computer
software, service marks, trademarks, trade names, trade styles, copyrights,
patents, applications for any of the foregoing, customer lists, working
drawings, instructional manuals, and rights in processes for technical
manufacturing, packaging and labeling, in which the Pledgor has any right or
interest, whether by ownership, license, contract or otherwise.

(l)            Have a receiver appointed by any
court of competent jurisdiction to take possession of the Collateral.  The
Pledgor hereby consents to the appointment of such a receiver and agrees not to
oppose any such appointment.

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

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

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Administrative Agent, any
Lender or any of their respective agents or affiliates to or for the credit of
the account of the Pledgor or any guarantor or endorser of the Pledgor’s
Indebtedness.

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

(p)           The
Pledgor waives all rights and defenses that the Pledgor may have because any of
the Indebtedness is secured by real property. 
This means, among other things: 
(i) the Administrative Agent may enforce this Agreement without first
foreclosing on any real or personal property collateral pledged by the Debtors;
and (ii) if the Administrative Agent forecloses on any real property collateral
pledged by the Debtors:  (1) the amount
of the Indebtedness may be reduced only by the price for which that collateral
is sold at the foreclosure sale, even if the collateral is worth more than the
sale price, and (2) the Administrative Agent may enforce this Agreement even if
the Administrative Agent, by foreclosing on the real property collateral, has
destroyed any right the Pledgor may have to collect from the Debtors.  This is an unconditional and irrevocable
waiver of any rights and defenses the Pledgor may have because any of the
Indebtedness is secured by real property. 
These rights and defenses include, but are not limited to, any rights or
defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of
Civil Procedure.  The Pledgor waives any right or
defense it may have at law or equity, including California Code of Civil
Procedure Section 580a, to a fair market value hearing or action to determine a
deficiency judgment after a foreclosure.  The Pledgor waives any rights and
defenses that are or may become available to the Pledgor by reason of Sections
2787 to 2855 inclusive, of the California Civil Code.

7.             ADMINISTRATIVE
AGENT APPOINTED ATTORNEY IN FACT.  Upon
the occurrence and during the continuation of an Event of Default, Pledgor
authorizes and irrevocably appoints the Administrative Agent as Pledgor’s true
and lawful attorney-in-fact with full power of substitution to take any action
and execute or otherwise authenticate any record or other documentation that
the Administrative Agent considers 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 instruments representing or included in the Collateral or
representing any payment, dividend or distribution relating to any Collateral
or to take any other action to enforce, collect or compromise any of the
Collateral; (b) to transfer any Collateral (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 any control agreement covering any
Collateral on Pledgor’s behalf and as attorney-in-fact for Pledgor in order to
perfect the Administrative Agent’s first priority and continuing security
interest in the Collateral and in order to provide the Administrative Agent
with control of the Collateral, and Pledgor’s signature on this Agreement or
other authentication of this Agreement shall constitute an irrevocable direction
by Pledgor to any bank, custodian, broker dealer, any other securities
intermediary or commodity intermediary holding any Collateral or any issuer of
any letters of credit to comply with any instructions or entitlement orders, of
the Administrative Agent without further consent of Pledgor; (c) to participate
in any recapitalization, reclassification, reorganization, consolidation,
redemption, stock split, merger or liquidation of any issuer of 

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securities which
constitute Collateral, and in connection therewith the Administrative Agent may
deposit or surrender control of the Collateral, accept money or other property
in exchange for the Collateral, and take such action as it deems proper in
connection therewith, and any money or property received on account of or in
exchange for the Collateral shall be applied to the Indebtedness or held by the
Administrative Agent thereafter as Collateral pursuant to the provisions
hereof; (d)  to exercise any right,
privilege or option pertaining to any Collateral, but the Administrative Agent
has no obligation to do so; (e) to file any claims, take any actions or
institute any proceedings which the Administrative Agent determines to be
necessary or appropriate to collect or preserve the Collateral or to enforce the
Administrative Agent’s rights with respect to the Collateral; (f) to execute in
the name or otherwise authenticate on behalf of Pledgor any record reasonably
believed necessary or appropriate by the Administrative Agent for compliance
with laws, rules or regulations applicable to any Collateral, or in connection
with exercising the Administrative Agent’s rights under this Agreement; (g) to
file any financing statement relating to this Agreement electronically, and the
Administrative Agent’s transmission of Pledgor’s signature on and
authentication of the financing statement shall constitute Pledgor’s signature
on and authentication of the financing statement; (h) to make any compromise or
settlement 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 to
perform any of Pledgor’s obligations under this Agreement; and (j) to execute
any documentation reasonably believed necessary by the Administrative Agent for
compliance with Rule 144 or any other restrictions, laws, rules or regulations
applicable to any Collateral hereunder that constitutes restricted or control
securities under the securities laws. 
The foregoing appointments are irrevocable and coupled with an interest
and shall survive the death or disability of Pledgor and shall not be revoked
without the Administrative Agent’s written consent.  To the extent permitted by law, Pledgor
hereby ratifies all said attorney-in-fact shall lawfully do by virtue hereof.

8.             MISCELLANEOUS.

(a)           Any waiver, express or implied, of
any provision hereunder and any delay or failure by the Administrative Agent to
enforce any provision shall not preclude the Administrative Agent from
enforcing any such provision thereafter.

(b)           The
Pledgor shall, at the request of the Administrative Agent, execute such other
agreements, documents, instruments, or financing statements in connection with
this Agreement as the Administrative Agent may reasonably deem necessary.

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

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

(e)           All rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies otherwise
provided by law.  Any single or partial
exercise of 

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any right or remedy shall
not preclude the further exercise thereof or the exercise of any other right or
remedy.

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

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

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

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

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

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

 10
 

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

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Executed as of
this 1st day of June, 2007.

	
  

  	
  BANK OF AMERICA, N.A., as
  administrative agent

  
	
   

  	
   

  	
   

  
	
   

  	
  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

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Jacob Y. Terner, M.D.

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  PROSPECT MEDICAL SYSTEMS, INC., a Delaware
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  R. Stewart Kahn

  
	
   

  	
  Title:

  	
  Executive Vice President

  

 

 13
 

 

	
  

  	
  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

EXHIBIT
A

INTELLECTUAL
PROPERTY

Trademark Name:  PROSPECT MEDICAL

(WORDS ONLY)

Serial
Number: 73900177

Official
Status: REGISTERED

Status
Date: August 09, 2004

Goods/Services:
 

HEALTH CARE SERVICES

International
Class:  

 42 (MISCELLANEOUS SERVICES) - PRIMARY CLASS

U.S.
Class:  

100 (MISCELLANEOUS SERVICE MARKS) - SECONDARY CLASS

State of
Registration: CALIFORNIA

Registration
Number: 059516

Registration
Date: August 09, 2004

Active/Inactive:
ACTIVE

First
Use Date: July, 1996

Mark
Type: 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)

            6083
BRISTOL PARKWAY, SUITE 100

            CULVER
CITY, CA 90230

            AS OF
August 09, 2004 

 1
 

Trademark
Name:  PROSPECT MEDICAL

(WORDS ONLY)

Serial
Number: 73900174

Official
Status: REGISTERED

Status
Date: August 09, 2004

Goods/Services:
 

BUSINESS MANAGEMENT SERVICES FOR ORGANIZATIONS PROVIDING HEALTH CARE SERVICES

International
Class:  

 35 (ADVERTISING AND BUSINESS SERVICES) - PRIMARY CLASS

 42 (MISCELLANEOUS SERVICES)

U.S.
Class:  

100 (MISCELLANEOUS SERVICE MARKS) - SECONDARY CLASS

101 (ADVERTISING AND BUSINESS SERVICES)

State of
Registration: CALIFORNIA

Registration
Number: 059513

Registration
Date: August 09, 2004

Active/Inactive:
ACTIVE

First
Use Date: July, 1996

Disclaimer:
MEDICAL

Mark
Type: 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)

            6083
BRISTOL PARKWAY, SUITE 100

            CULVER
CITY, CA 90230

            AS OF
August 09, 2004

 2Exhibit
10.3

 

 

PLEDGE
AGREEMENT

1.             GRANT OF
SECURITY INTEREST.  The
undersigned Prospect Medical Holdings, Inc., a Delaware corporation (“Pledgor”)
hereby irrevocably and unconditionally grants a security interest in, a lien
upon and the right of set-off against, and assigns and transfers to Bank of
America, N.A., as administrative agent, and its successors and assigns
(collectively, the “Administrative Agent”), for the benefit of the
Administrative Agent and the Lenders (as defined below), all property referred
to in Exhibit A attached hereto and incorporated herein, as hereafter amended
or supplemented from time to time (the “Collateral”). The parties hereto
expressly agree that all rights, assets and property at any time held in or
credited to any securities account constituting Collateral shall be treated as
financial assets as defined in the Uniform Commercial Code as in effect in any
applicable state (the “UCC”).

2.             INDEBTEDNESS.

(a)           The Collateral secures and will
secure all Indebtedness of Pledgor to the Administrative Agent or any
Lender.  Each person or entity obligated
under any Indebtedness is sometimes referred to in this Agreement as a “Debtor.”

(b)           “Indebtedness”
means:

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

(ii)           all debts, obligations or liabilities
arising pursuant to any agreement between Pledgor and/or any Debtor and the
Administrative Agent, any Lender or any of their respective affiliates now
existing or hereafter entered into, which provides for an interest rate,
credit, commodity or equity swap, cap, floor, collar, forward foreign exchange
transaction, currency swap, cross currency rate swap, currency option,
securities puts, calls, collars, options or forwards or any combination of, or
option with respect to, these or similar transactions (each a “Hedge
Transaction”);

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

(iv)          all
costs, attorneys’ fees and expenses incurred by the Administrative Agent in
connection with the collection or enforcement of any of the above.

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

(a)           Pledgor is the legal and beneficial
owner 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 the
Administrative Agent, and will keep the Collateral free of all liens, claims,
security interests and encumbrances of any kind or nature, whether voluntary or
involuntary, except the security interest of the Administrative Agent; provided
that Prospect
Hospital Advisory Services, Inc. may pledge its shares of
Brotman Medical Center in favor of a lender of Brotman Medical Center.

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

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

(d)           If any of the Collateral is margin
stock as defined in Regulation U promulgated by the Board of Governors of the
Federal Reserve System of the United States (“FRB”), Pledgor will
provide the Administrative Agent a properly executed Form U-1 Purpose
Statement. The Administrative Agent and Pledgor will comply with the
requirements and restrictions imposed by Regulation U.

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

(f)            If Pledgor is an individual, Pledgor
resides and has for the four month period preceding the date hereof resided, or
if Pledgor is not an individual, Pledgor’s chief executive office is, and has
been for the four-month period preceding the date hereof (or, if less, the
entire period of the existence of Pledgor) located, in the state specified on
the signature page hereof.  In addition,
if Pledgor is not an individual, Pledgor is an organization of the type and (if
an  unregistered entity), is incorporated
in or organized under the laws of the state specified on such signature page.  Pledgor shall give the Administrative Agent
at least thirty (30) days notice before changing the location of its residence
or its chief executive office, type of organization, business structure  or state of incorporation or organization.

 2
 

(g)           If Pledgor is not an individual,
Pledgor’s organizational identification number, if any, assigned by its state
of incorporation or organization is correctly set forth on the signature page
hereof.  Pledgor shall promptly notify
the Administrative Agent (i) of any change of its organizational identification
number, or (ii) if Pledgor does not have an organizational identification
number and later obtains one, of such organizational identification number.

4.             REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING
EQUITY SECURITIES COLLATERAL.  Pledgor
hereby represents, warrants and covenants the following with respect to any
equity securities comprising any or all of the Collateral (the “Equity
Securities”) and covenants and agrees to promptly notify the Administrative
Agent in writing in the event that any of the foregoing representations and
warranties is no longer true and correct:

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

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

(c)           Pledgor is not an “affiliate” of the
issuer of any of the Equity Securities, as such term is defined in Rule 144 of
the 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 the
continuation of an Event of Default, Pledgor authorizes and irrevocably
appoints the Administrative Agent as Pledgor’s true and lawful attorney-in-fact
with full power of substitution to take any action and execute or otherwise
authenticate any record or other documentation that the Administrative Agent
considers 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 instruments
representing or included in the Collateral or representing any payment,
dividend or distribution relating to any Collateral or to take any other action
to enforce, collect or compromise any of the Collateral; (b) to transfer any
Collateral (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 any
control agreement covering any Collateral on Pledgor’s behalf and as
attorney-in-fact for Pledgor in order to perfect the Administrative Agent’s
first priority and continuing security interest in the Collateral and in order
to provide the Administrative Agent with control of the Collateral, and Pledgor’s
signature on this Agreement or other authentication of this Agreement shall
constitute an irrevocable direction by Pledgor to any bank, custodian, broker
dealer, any other securities intermediary or commodity intermediary holding any
Collateral or any issuer of any letters of credit to comply with any
instructions or entitlement orders, of the Administrative Agent without further
consent of Pledgor; (c) to participate in any recapitalization,
reclassification, reorganization, consolidation, redemption, stock split,
merger or liquidation of any issuer of 

 3
 

securities which constitute Collateral, and in
connection therewith the Administrative Agent may deposit or surrender control
of the Collateral, accept money or other property in exchange for the
Collateral, and take such action as it deems proper in connection therewith,
and any money or property received on account of or in exchange for the
Collateral shall be applied to the Indebtedness or held by the Administrative
Agent thereafter as Collateral pursuant to the provisions hereof; (d)  to exercise any right, privilege or option
pertaining to any Collateral, but the Administrative Agent has no obligation to
do so; (e) to file any claims, take any actions or institute any proceedings
which the Administrative Agent determines to be necessary or appropriate to
collect or preserve the Collateral or to enforce the Administrative Agent’s
rights with respect to the Collateral; (f) to execute in the name or otherwise
authenticate on behalf of Pledgor any record reasonably believed necessary or
appropriate by the Administrative Agent for compliance with laws, rules or
regulations applicable to any Collateral, or in connection with exercising the
Administrative Agent’s rights under this Agreement; (g) to file any financing
statement relating to this Agreement electronically, and the Administrative
Agent’s transmission of Pledgor’s signature on and authentication of the
financing statement shall constitute Pledgor’s signature on and authentication
of the financing statement; (h) to make any compromise or settlement 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 to perform any of Pledgor’s
obligations under this Agreement; and (j) to execute any documentation
reasonably believed necessary by the Administrative Agent for compliance with
Rule 144 or any other restrictions, laws, rules or regulations applicable to
any Collateral hereunder that constitutes restricted or control securities
under the securities laws.  The foregoing
appointments are irrevocable and coupled with an interest and shall survive the
death or disability of Pledgor and shall not be revoked without the
Administrative Agent’s written consent. 
To the extent permitted by law, Pledgor hereby ratifies all said
attorney-in-fact shall lawfully do by virtue hereof.

6.             VOTING RIGHTS.

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

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

7.             EVENTS OF DEFAULT;
REMEDIES.

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

 4
 

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

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

(iii)          Pledgor or any Debtor breaches any
term, provision, warranty or representation under this Agreement not
specifically referred to in subsection (a) of this Section or breaches any
term, provision, warranty or representation of any other agreement or
instrument evidencing, securing or executed or delivered in connection with the
Indebtedness beyond any grace period provided with respect thereto.

(iv)          A receiver or similar official is
appointed for a substantial portion of any business or other property of
Pledgor, any Debtor or any guarantor of any Indebtedness, or their business is
terminated, or, if Pledgor, any Debtor or any such guarantor is anything other
than a natural person, such Pledgor, Debtor or guarantor is liquidated or
dissolved.

(v)           Pledgor, any Debtor, or any guarantor
of any Indebtedness files a bankruptcy petition, a bankruptcy petition is filed
against any of the foregoing parties, or Pledgor, any Debtor, or any such
guarantor makes a general assignment for the benefit of creditors.

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

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

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

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

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

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

 5
 

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

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

(iv)          Sell all or any part of the Collateral
at public or private sale in accordance with the UCC, without advertisement, in
such manner and order as the Administrative Agent may elect.  The Administrative Agent may purchase the
Collateral for its own account at any such sale. The Administrative Agent shall
give Pledgor such notice of any public or private sale as may be required by
the UCC, provided that to the extent notice of any such sale is required by the
UCC or other applicable law, Pledgor agrees that at least 10 days notice to
Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification and
provided further that, if the Administrative Agent fails to comply with this
sentence in any respect, its liability for such failure shall be limited to the
liability (if any) imposed on it as a matter of law under the UCC or other
applicable law.  Pledgor acknowledges
that Collateral may be sold at a loss to Pledgor, and that, in such event, the
Administrative Agent shall have no liability or responsibility to Pledgor for
such loss.  Pledgor further acknowledges
that a private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that no such private sale shall, to the extent permitted
by applicable law, be deemed not to be “commercially reasonable” solely as a
result of such prices and other sale terms. 
Upon any such sale, the Administrative Agent shall have the right to
deliver, assign and transfer to the buyer thereof the Collateral so sold.  Each buyer at any such sale shall hold the
Collateral so sold absolutely and free from any claim or right of whatsoever kind,
including any equity or right of redemption of Pledgor that may be waived or
any other right or claim of Pledgor, and Pledgor, to the extent permitted by
law, hereby specifically waives all rights of redemption, stay or appraisal
that Pledgor has or may have under any law now existing or hereafter adopted.

Without limiting any
other rights and remedies available to the Administrative Agent, Pledgor
expressly acknowledges and agrees that with respect to Collateral consisting of
notes, bonds or other securities  which
are not sold on a recognized market , the Administrative Agent shall be deemed
to have conducted a commercially reasonable sale of such Collateral if (a) such
sale is conducted by any nationally recognized broker-dealer (including
any affiliate of the Administrative Agent), investment banker or any other
method common in the securities industry, and (b) if the purchaser is the
Administrative Agent or any affiliate of the Administrative Agent, the sale
price received by the Administrative Agent in connection with such sale is
reasonably supported by quotations received from one or more other nationally
recognized broker-dealers, investment bankers or other financial institutions.

 6
 

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

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

(vii)         Comply with any applicable state or
federal law requirements in connection with a disposition of the Collateral and
such compliance will not be considered to affect adversely the commercial
reasonableness of any sale or other disposition of the Collateral.

(viii)        Sell the Collateral without giving any
warranties as to the Collateral.  The
Administrative Agent may specifically disclaim any warranties of title or the
like.  This procedure will not be
considered to affect adversely the commercial reasonableness of any sale or
other disposition of the Collateral.

8.             RIGHT TO CURE; LIMITATION ON ADMINISTRATIVE AGENT’S
DUTIES.  If Pledgor fails to perform any
agreement contained herein, the Administrative Agent may perform or cause
performance of such agreement and the expenses of the Administrative Agent
incurred in connection therewith shall be payable by Pledgor or Debtor under
the Section entitled “COSTS”. 
Any powers conferred on the Administrative Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers.  Except for
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.  The
Administrative Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which the Administrative
Agent accords its own property, it being understood that the Administrative
Agent shall not have any responsibility for (a) ascertaining, exercising or
taking other action or 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 of such matters, or (b) taking any necessary steps to
preserve rights against any parties with respect to any Collateral.  The Administrative Agent shall not be liable
for any loss to the Collateral resulting from acts of God, war, civil commotion,
fire, earthquake, or other disaster or for any other loss or damage to the
Collateral except to the extent such loss is determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
Administrative Agent’s gross negligence or willful misconduct.

9.             WAIVERS.  The
Administrative Agent shall be under no duty or obligation whatsoever and
Pledgor waives any right to require the Administrative Agent to (i) make or
give any presentment, demands for performances, notices of nonperformance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by the Administrative Agent as
Collateral, or in connection with any obligation or evidences of indebtedness
which constitute in whole or in part the Indebtedness, (ii) proceed against any

 7
 

person or entity, (iii) proceed against or exhaust any
collateral, or (iv) pursue any other remedy in the Administrative Agent’s
power; and Pledgor waives any defense arising by reason of any disability or
other defense of Debtor or any other person, or by reason of the cessation from
any cause whatsoever of the liability of Debtor or any other person.  Until the Indebtedness is paid in full,
Pledgor waives any right of subrogation, reimbursement, indemnification, and
contribution (contractual, statutory or otherwise), including without
limitation any claim or right of subrogation under 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 waives any right to enforce any
remedy which the Administrative Agent now has or may hereafter have against
Debtor or against any other person and waives any benefit of and any right to
participate in any Collateral or security whatsoever now or hereafter held by
the Administrative Agent.  If Pledgor is
not also a Debtor with respect to a specified Indebtedness, Pledgor authorizes
the Administrative Agent without 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 the terms of the Indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (ii) take and
hold security, other than the Collateral, for the payment of the Indebtedness
or any part thereof, and exchange, enforce, waive and release the Collateral or
any part thereof or any such other security; and (iii) release or substitute
Debtor or any one or more of them, or any of the endorsers or guarantors of the
Indebtedness or any part thereof, or any other parties thereto and Pledgor
consents to the taking of, or failure to take, any action by the Administrative
Agent which might in any manner or to any extent vary the risks of Pledgor
under this Agreement or which, but for this provision, might operate as a
discharge of Pledgor.  Pledgor agrees
that it is solely responsible for keeping itself informed as to the financial
condition of Debtor and of all circumstances which bear upon the risk of
nonpayment or the risk of a margin call or liquidation of the Collateral.

10.           TRANSFER, DELIVERY
AND RETURN OF COLLATERAL.

(a)           Pledgor shall immediately deliver or
cause to be delivered to the Administrative Agent (or the Securities Intermediary,
if any) (i) any certificates or instruments now or hereafter representing or
evidencing Collateral and such certificates and instruments shall be in
suitable form for transfer without restriction or stop order by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank in form and substance satisfactory to the Administrative Agent, 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 any Collateral
and any such amounts, if received by Pledgor, shall be received in trust for
the benefit of the Administrative Agent and be segregated from the other
property or funds of Pledgor.

(b)           The Administrative Agent may at any time
deliver the Collateral or any part thereof to Pledgor and the receipt by
Pledgor shall be a complete and full acquittance for the Collateral so
delivered, and the Administrative Agent shall thereafter be discharged from any
liability or responsibility therefor.

(c)           Upon the transfer of all or any part
of the Indebtedness, the Administrative Agent may transfer all or any part of
the Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such Collateral so 

 8
 

transferred, and the
transferee shall be vested with all the rights and powers of the Administrative
Agent hereunder with respect to such Collateral so transferred; but with
respect to any Collateral not so transferred the Administrative Agent shall retain
all rights and powers hereby given. 
Pledgor agrees that the Administrative Agent may disclose to any
prospective purchaser or transferee and any purchaser or transferee of all or
part of the Indebtedness any and all information in the Administrative Agent’s
possession concerning Pledgor, this Agreement and the Collateral.

11.           CONTINUING AGREEMENT
AND POWERS.

(a)           This is a continuing Agreement and
all the rights, powers and remedies hereunder shall, unless otherwise limited
herein, apply to all past, present and future Indebtedness of Debtor or any one
or more of them to the Administrative Agent and the Lenders, including that
arising under successive transactions which shall either continue the
Indebtedness, increase or decrease it, or from time to time create new
Indebtedness after all or any prior Indebtedness has been satisfied, and
notwithstanding the death, incapacity, cessation of business, dissolution or
bankruptcy of Debtor or any one or more of them, or any other event or
proceeding affecting Debtor or any one or more of them.

(b)           Until all Indebtedness shall have
been paid in full and the Administrative Agent and the Lenders shall have no
obligation to extend credit to any Debtor, the power of sale and all other
rights, powers and remedies granted to the Administrative Agent hereunder shall
continue to exist and may be exercised by the Administrative Agent at the time
specified hereunder irrespective of the fact that the Indebtedness or any part
thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor or any one or more of them may have ceased.  Pledgor waives the benefit of any statute of
limitations as applied to this Agreement.

12.           SECURITIES INTERMEDIARY.  Upon the occurrence and during the continuation
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 securities intermediary (the
“Securities Intermediary”).  Pledgor
shall pay to the Securities Intermediary any charges or costs imposed by the
Securities Intermediary.  Pledgor at no
time shall request that the Securities Intermediary release any Collateral to
Pledgor, except as expressly permitted by the Administrative Agent.  The Administrative Agent may require that Pledgor
obtain a control agreement, signed by the Securities Intermediary, in form and
substance acceptable to the Administrative Agent.  The Administrative Agent may, at any time but
in accordance with the terms of this Agreement and any control agreement, require
the Securities Intermediary to do any or all of the following: (a) disburse any
or all of the Collateral to the Administrative Agent; (b) allow the
Administrative Agent (and not Pledgor) to exercise any rights relating to the
Collateral; (c) sell some or all of the Collateral and remit the sales proceeds
(less the Securities Intermediary’s normal sales charge) to the Administrative
Agent; and (d) buy and sell Collateral only upon the instructions of the
Administrative Agent (and not Pledgor). 
If the Administrative Agent assigns or transfers its rights under this
Agreement and the Administrative Agent is the Securities Intermediary for any
or all of the Collateral, Pledgor agrees that the Administrative Agent, in such
capacity, is irrevocably directed by Pledgor to comply with instructions or
entitlement orders with respect to 

 9
 

such Collateral originated by any assignee or
transferee of this Agreement without further consent of Pledgor.

13.           COSTS.  All advances, charges, costs and expenses,
including reasonable attorneys’ fees, incurred or paid by the Administrative
Agent in exercising any right, power or remedy conferred by this Agreement or
in the enforcement thereof, and including the charges and expenses of the
Administrative Agent’s custody unit or of any Securities Intermediary, shall
become a part of the Indebtedness secured hereunder and shall be paid to the
Administrative Agent by Debtor and Pledgor immediately and without demand, with
interest thereon at an annual rate equal to the highest rate of interest of any
Indebtedness 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 include
the allocated cost of in-house counsel to the extent permitted by law.

14.           NOTICES.  Unless otherwise provided or agreed to herein
or required by law, notice and communications provided for in this Agreement
shall be in writing and shall be mailed, telecopied or delivered to Pledgor to
the address or facsimile number for notices set forth for Pledgor below or
across from its signature below or at such other address or facsimile number as
shall be designated by Pledgor in a written notice to the Administrative Agent
at the address for notices set forth for the Administrative Agent below or
across from the Administrative Agent’s signature below.  If Pledgor’s address or facsimile number for
notices is not entered below and Pledgor has not otherwise designated such
address or facsimile number to the Administrative Agent in writing, then the
address and/or facsimile number for Pledgor in the Administrative Agent’s
records 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 or
on the fourth business day after deposit in the U.S. mail, postage prepaid, (b)
overnight courier shall be deemed delivered on the next business day after
deposit with the overnight courier, (c) facsimile shall be deemed delivered
when transmitted and (d) any other method, shall be deemed delivered when
delivered.  To the extent that oral
notification is provided for or agreed to herein, such oral notification may be
made by telephone to any of the number(s) set forth on the signature page for
Pledgor; provided that any oral notification in person or at any other
telephone number shall constitute notification hereunder.

15.           INDEMNITY.  Pledgor shall indemnify, hold harmless and
defend the Administrative Agent and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations,
liabilities and expenses, including defense costs, investigative fees and
costs, and legal fees and damages arising from their execution of or
performance under this Agreement or any control agreement executed by the
Administrative Agent in connection with the Collateral, except to the extent
that such claim, action, obligation, liability or expense is determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted 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 by
the party or parties sought to be charged or 

 10
 

bound thereby, and (ii) may be executed in any number of identical
counterparts, each of which shall be deemed an original for all purposes and
all of which constitute, collectively, one agreement; but, in making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart.  Any waiver,
express or implied, of any provision hereof and any delay or failure by the
Administrative Agent to enforce any provision shall not preclude the
Administrative Agent from enforcing any such provision thereafter.

(b)           Pledgor hereby irrevocably authorizes
the Administrative Agent to file one or more financing statements describing
all or part of the Collateral, and continuation statements, or amendments
thereto, relative to all or part of the Collateral as authorized by applicable
law.  Such financing statements,
continuation statements and amendments will contain any other information
required by the UCC for the sufficiency or filing office acceptance of any
financing statement, continuation statement or amendment, including whether
Pledgor is an organization, the type of organization and any organizational
identification number issued to Pledgor. 
Pledgor agrees to furnish any such information to the Administrative
Agent promptly upon request.  Pledgor
also ratifies its authorization for the Administrative Agent to have filed any
initial financing statement or amendments thereto filed prior to the date
hereof.

(c)           From time to time, Pledgor and Debtor
shall, at the request of the Administrative Agent, execute such other
agreements, documents or instruments or take any other actions in connection
with this Agreement as the Administrative Agent may reasonably deem necessary
to evidence or perfect the security interests granted herein, to maintain the
first priority of the security interests, or to effectuate the rights granted
to the Administrative Agent herein, but their failure to do so shall not limit
or affect any security interest or any other rights of the Administrative Agent
in and to the Collateral.  Pledgor will
execute and deliver to the Administrative Agent any stock powers, instructions
to any securities intermediary, issuer or transfer agent, proxies, or any other
documents of transfer that the Administrative Agent requests in order to
perfect, obtain control or otherwise protect the Administrative Agent’s
security interest in the Collateral or to effect the Administrative Agent’s
rights under this Agreement.  Such powers
or documents may be executed in blank or completed prior to execution, as
requested by the Administrative Agent.

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

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

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

 11
 

(g)           All rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies otherwise
provided by law.  Any single or partial
exercise of any right or remedy shall not preclude the further exercise of any
other right or remedy.

(h)           In all cases where more than one
party executes this Agreement, all words used herein in the singular shall be
deemed to have been used in the plural where the context and construction so
require, and all obligations and undertakings hereunder of such parties are
joint and several.

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

(j)            This Agreement and any other
documents executed or delivered in connection herewith constitute the entire
agreement of the parties hereto with respect to the subject matter hereof and
shall supersede any prior expressions of intent or understandings with respect
to this transaction.

17.           FINAL AGREEMENT.  BY SIGNING THIS DOCUMENT EACH PARTY
REPRESENTS AND AGREES THAT:  (A) THIS
DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM
SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT
MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN
OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY
NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

 12
 

Executed as of the 1st day of June, 2007.

	
  

  	
  BANK OF AMERICA, N.A., as administrative agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  Bank of America,
  N.A.

  
	
   

  	
  Agency
  Management

  
	
   

  	
  Mail Code:
  WA1-501-32-37

  
	
   

  	
  800 Fifth
  Avenue, Floor 32

  
	
   

  	
  Seattle, WA
  98104

  
	
   

  	
  Attention:   Tiffany Shin

  

 

	
  Pledgor’s Chief Executive Office:

  400 Corporate
  Pointe, Suite 525 

  Culver City, California 90230

  	
  PLEDGOR: 

  PROSPECT MEDICAL HOLDINGS, INC., a Delaware
  corporation 

  
	
   

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
  Name:

  	
  Jacob Y. Terner, M.D. 

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
  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): Delaware

  	
  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”):

  

 

 13

Exhibit A to
Pledge Agreement

Description of
Collateral

Pledged Equity:

	
  Pledged Entity

  	
   

  	
  Class of Stock

  	
   

  	
  Stock

  Certificate #

  	
   

  	
  Number of

  Shares

  	
   

  	
  Percentage of 

  Outstanding

  Shares

  	
   

  
	
  Sierra Medical
  Management, Inc., a Delaware corporation

  	
   

  	
  Common

  	
   

  	
  2

  	
   

  	
  1,000

  	
   

  	
  100

  	
  %

  
	
  Prospect Medical
  Systems, Inc., a Delaware corporation

  	
   

  	
  Common

  	
   

  	
  17

  	
   

  	
  1,600

  	
   

  	
  100

  	
  %

  
	
  Prospect Hospital
  Advisory Services, Inc., a Delaware corporation

  	
   

  	
  Common

  	
   

  	
   

  	
   

  	
  1,000

  	
   

  	
  100

  	
  %

  
	
  Prospect Advantage
  Network, Inc., a California corporation

  	
   

  	
  Common

  	
   

  	
   

  	
   

  	
  1,000

  	
   

  	
  100

  	
  %

  
	
  ProMed Health Services Company, a California corporation

  	
   

  	
  Common

  	
   

  	
   

  	
   

  	
  1,000

  	
   

  	
  100

  	
  %

  

 

The Pledged Equity includes
all present and future income, proceeds, earnings, increases, and substitutions
from or for the Collateral of every kind and nature, including without
limitation 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 become
due, proceeds of any insurance on the Collateral, shares of stock of different
par value or no par value issued in substitution or exchange for shares
included in the Collateral, and all other property Pledgor is entitled to
receive on account of such Collateral, including accounts, documents,
instruments, chattel paper, and general intangibles.

 1

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