Document:

Exhibit 10.37

 

Execution Copy

 

FIRST LIEN PLEDGE AGREEMENT

 

1.           GRANT OF SECURITY
INTEREST.

 

(a)           The
undersigned Jacob Y. Terner, M.D., an individual (“Terner” or the “Pledgor”)
hereby irrevocably and unconditionally grants a first priority 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”).  Capitalized terms used herein, but not
defined herein, shall have the respective meanings set forth in the Credit
Agreement (as defined below).  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”).

 

(b)           Notwithstanding
anything contained herein to the contrary, the liens and security interests
granted to the Administrative Agent, for the benefit of the Lenders, pursuant
to this Agreement, and the exercise of any right or remedy by the
Administrative Agent, for the benefit of the Lenders, under this Agreement, are
subject to the provisions of the Intercreditor Agreement. In the event of any
conflict between the terms of the Intercreditor Agreement and this Agreement,
the terms of the Intercreditor Agreement shall govern and control.

 

2.           INDEBTEDNESS.

 

(a)           The
Collateral secures and will secure all Indebtedness of (i) Prospect
Medical Group, Inc., a California professional corporation (“PMG”),
(ii) Prospect Medical Holdings, Inc., a Delaware corporation (“Holdings”)
and (iii) PMS, in each case, owed to the Administrative Agent and the
Lenders.  Each person or entity obligated
under any Indebtedness is sometimes referred to in this Agreement as a “Debtor”.

 

(b)            “Indebtedness”
means:

 

(i)            all
“Obligations” (as such term is defined in the Credit Agreement) under (A) that
certain First Lien Credit Agreement (as amended, restated, modified or
otherwise supplemented, the “Credit Agreement”) dated of even date
herewith among Holdings, PMG, the Administrative Agent and the other financial
institutions from time to time party thereto (the “Lenders”), (B) the
other Loan Documents, and (C) 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
obligations and liabilities of Pledgor to the Administrative Agent hereunder,
and

 

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

 

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(c)           Unless
otherwise agreed in writing, “Indebtedness” shall not include any debts,
obligations or liabilities which are or may hereafter be “consumer credit”
subject to the disclosure requirements of the Federal Truth in Lending law or
any regulation promulgated thereunder.

 

3.           COVENANTS, REPRESENTATIONS AND WARRANTIES.   Pledgor and each Debtor covenant, represent
and warrant 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
first priority security interest of the Administrative Agent and the Second
Priority Lien (as defined in the Second Lien Credit Agreement) of the Second
Lien 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 first priority security interest of the
Administrative Agent and the Second Priority Lien of the Second Lien
Administrative Agent.  Pledgor is the
Chief Executive Officer of PMG, its affiliate, Holdings, and Holdings’
subsidiary PMS.  Pledgor holds title to
the Collateral as an individual and such Collateral is subject to assignable
option agreements that allow PMS and PMG, as applicable, to acquire the
Collateral or designate a successor physician as the record holder of such
Collateral at any time (collectively, as each may be amended, the “Option
Agreement”).

 

(b)           Pledgor
and each Debtor shall, at PMG’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
and each Debtor agree to cause PMG, and PMG 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)            Pledgor
resides and has for the four month period preceding the date hereof resided in
the state specified on the signature page hereof.  Pledgor shall give the Administrative Agent
at least thirty (30) days notice before changing the location of his residence.

 

4.            REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING
EQUITY SECURITIES COLLATERAL.  Pledgor
and each Debtor hereby represent, warrant and covenant the following with
respect to any equity securities comprising any or all of the Collateral
(collectively, the “Equity Securities”) and covenant and agree 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:

 

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(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).

 

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 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; (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.

 

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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”):

 

(i)            An
“Event of Default” under the Credit Agreement (as such term is defined in the
Credit Agreement) occurs and is continuing.

 

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

 

(iii)          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.

 

(iv)          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 the Credit
Agreement or any other agreement or instrument evidencing, securing or executed
or delivered in connection with the Indebtedness beyond any grace period
provided with respect thereto.

 

(v)           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.

 

(vi)          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.

 

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(ii)           Exercise
as to any or all of the Collateral all the rights, powers and remedies of an
owner, subject to the provisions of Section 6 of this Agreement.

 

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

 

(iv)          Subject
to applicable Laws (including, without limitation, securities laws and
regulations), 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.

 

(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.

 

(ix)           If
requested by the Administrative Agent, Holdings, PMS and/or PMG will direct
Pledgor (whether pursuant to the Option Agreement or otherwise), or his estate,
as the case may be, to sell and Pledgor, or his estate, as the case may be,
shall promptly sell all (or any portion as may be directed by the Administrative
Agent) of the Collateral to such person(s) as Holdings, PMS and PMG shall
in their reasonable discretion direct, subject to the reasonable approval of
Administrative Agent (the “New
Shareholder(s)”).  If
requested by the Administrative Agent, such New Shareholder(s) shall
execute and deliver to the Administrative Agent a pledge agreement and such
other agreements, documents and instruments as the Administrative Agent and the
Lenders may request evidencing or relating to the Collateral, each in form and
substance satisfactory to the Administrative Agent.

 

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 the Debtors, on a joint and
several basis, under Section 13. 
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 

 

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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 person or entity, (iii) proceed against or exhaust any
collateral in any order and in any manner it so elects or (iv) pursue any
other remedy in the Administrative Agent’s power.  Pledgor waives any defense arising by reason
of (i) any disability or other defense of any Debtor or any other person, (ii) the
cessation from any cause whatsoever of the liability of any Debtor or any other
person, (iii) any lack of validity or enforceability of the Credit
Agreement, any other document of consistence executed in connection herewith or
any other agreement or instrument governing or evidencing any Secured
Obligations, (iv) the insolvency of any Debtor or any other person or (v) any
other circumstance which might otherwise constitute a defense available to, or
a discharge of, Pledgor.

 

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 any 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; (iii) apply the proceeds of any Collateral to the
Indebtedness in any order and in any manner it so elects and (iv) release
or substitute any 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 each Debtor and of all circumstances which
bear upon the risk of nonpayment or the risk of a margin call or liquidation of
the Collateral.

 

Pledgor
understands and acknowledges that if the Administrative Agent forecloses
judicially or nonjudicially against any real property security for the
Indebtedness, that foreclosure could impair or 

 

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destroy any ability that
Pledgor may have to seek reimbursement, contribution, or indemnification from
any Debtor or others based on any right Pledgor may have of subrogation,
reimbursement, contribution, or indemnification for any amounts paid by Pledgor
under this Agreement.  Pledgor further
understands and acknowledges that in the absence of this paragraph, such
potential impairment or destruction of the Pledgor’s rights, if any, may
entitle Pledgor to assert a defense to this Agreement based on Section 580d
of the California Code of Civil Procedure as interpreted in Union Bank v.
Gradsky, 265 Cal.App.2d 40 (1968). By executing this Agreement, Pledgor
freely, irrevocably, and unconditionally: (i) waives and relinquishes that
defense and agrees that Pledgor will be fully liable under this Agreement even
though the Administrative Agent or any other person may foreclose, either by
judicial foreclosure or by exercise of power of sale, any deed of trust
securing the Indebtedness; (ii) agrees that Pledgor will not assert that
defense in any action or proceeding which the Administrative Agent or any other
person may commence to enforce this Agreement; (iii) acknowledges and
agrees that the rights and defenses waived by Pledgor in this Agreement include
any right or defense that the Pledgor may have had or be entitled to assert
based on or arising out of any one or more of Sections 580a, 580b, 580d, or 726
of the California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledges and agrees that the
Administrative Agent and each other Lender is relying on this waiver in
creating the Indebtedness, and that this waiver is a material part of the
consideration which the Administrative Agent and each Lender is receiving for
creating the Indebtedness.

 

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 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 any Debtor or any one or more of them to the Administrative
Agent and the Lenders, including that

 

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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 any
Debtor or any one or more of them, or any other event or proceeding affecting
any 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 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 the Debtors, on a
joint and several basis, 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 and each Debtor to the respective
addresses or facsimile numbers for notices set forth for Pledgor and each
Debtor below or across from its signature below or at such other address or
facsimile number as shall be designated by Pledgor or such Debtor 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 either Pledgor’s or Holdings’
address or facsimile number for notices is not entered below the respective
Person has not otherwise designated such address or facsimile number to the 

 

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Administrative Agent in
writing, then the address and/or facsimile number for such Person in the
Administrative Agent’s records shall be deemed the address or facsimile for
notices to such Person.  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.         GOVERNING LAW; JURISDICTION; JURY TRIAL, ETC.

 

(a)           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

(b)           SUBMISSION TO JURISDICTION.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND
UNCONDITIONALLY SUBMIT, FOR HIMSELF/ITSELF AND THE COLLATERAL, TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN
BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN
DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, IN SUCH FEDERAL COURT.  EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER
LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER
OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER HOLDINGS,
PLEDGOR OR THE COLLATERAL IN THE COURTS OF ANY JURISDICTION.

 

(c)            WAIVER OF VENUE.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS
SECTION.  EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.

 

(d)           SERVICE OF
PROCESS.  EACH PARTY HERETO
IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES
IN SECTION 14.  NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY 

 

9

 

PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW.

 

(e)            WAIVER OF JURY
TRIAL.  EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

(f)            California
Judicial Reference.  If any action or
proceeding is filed in a court of the State of California by or against any
party hereto in connection with any of the transactions contemplated by this
Agreement or any other Loan Document, (a) the court shall, and is hereby
directed to, make a general reference pursuant to California Code of Civil
Procedure Section 638 to a referee (who shall be a single active or
retired judge) to hear and determine all of the issues in such action or proceeding
(whether of fact or of law) and to report a statement of decision, provided
that at the option of any party to such proceeding, any such issues pertaining
to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8
shall be heard and determined by the court and (b) PMG shall be solely
responsible to pay all fees and expenses of any referee appointed in such
action or proceeding.

 

16.         INDEMNITY.  Each
Debtor shall jointly and severally 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.

 

17.         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 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.

 

10

 

(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.  Pledgor agrees to furnish any
such information to the Administrative Agent promptly upon request.  Pledgor also ratifies Pledgor’s 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 each 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)           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.

 

(e)           This
Agreement shall benefit the Administrative Agent’s successors and assigns and
shall bind each of Pledgor’s and each Debtor’s successors and assigns, except
that none of the Debtors or Pledgor may assign their respective rights or
obligations under this Agreement.

 

(f)            No
failure by the Administrative Agent or any Lender to exercise, and no delay by
any such Person in exercising, any right, remedy, power or privilege hereunder,
under the Credit Agreement or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges
herein provided and provided under the Credit Agreement and each other Loan
Document are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.

 

(g)           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.

 

(h)           This
Agreement and any other documents executed or delivered in connection herewith
including, but not limited to the Intercreditor Agreement,  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.

 

11

 

18.         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.

 

[Signature Pages Follow]

 

12

 

Executed
as of the      day of August, 2007.

 

	
   

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

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  Bank
  of America, N.A.

  
	
   

  	
  Agency
  Management

  
	
   

  	
  800
  Fifth Avenue, Floor 32

  
	
   

  	
  WA1-501-32-37

  
	
   

  	
  Seattle,
  WA  98104

  
	
   

  	
  ATTN:
  Tiffany Shin

  
					

 

[First Lien Pledge Agreement – Terner]

 

 

	
  Pledgor’s
  Residence  

  	
  PLEDGOR:
  

  
	
   

  	
   

  
	
  California
  

  	
   

  
	
   

  	
  Signature
  

  
	
   

  	
   

  
	
  Address
  for Notices to Pledgor:  

   

  c/o
  Prospect Medical Group, Inc.  

  400
  Corporate Pointe, Suite 525  

  Culver
  City, California 90230  

  	
  Printed
  Name: Jacob Y. Terner, M.D.  

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address
  for Notices to Holdings, PMG and PMS:  

   

  	
  Agreed
  to as of the date hereof:  

  PROSPECT
  MEDICAL GROUP, INC.  

  
	
  c/o
  Prospect Medical Group, Inc.  

  	
   

  
	
  400
  Corporate Pointe, Suite 525  

  	
  By:
  

  	
   

  
	
  Culver
  City, California 90230

  	
  Name:
  

  
	
   

  	
  Title:
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT
  MEDICAL HOLDINGS, INC.  

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:
  

  
	
   

  	
  Title:
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT
  MEDICAL SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:
  

  
	
   

  	
  Title:
  

  

 

[First Lien Pledge Agreement – Terner]

 

 

SPOUSAL
JOINDER AND CONSENT

 

I
am the spouse of Jacob Y. Terner, M.D. (“Terner”).  To the extent that I have any interest in any
of the Collateral (as that term is defined in the attached First Lien Pledge
Agreement dated as of August 8, 2007 between Terner and Bank of America,
N.A., as administrative agent (the “Pledge Agreement”)), I hereby join
in the Pledge Agreement and agree to be bound by its terms and conditions to
the same extent as my spouse.  I have
read the Pledge Agreement, understand its terms and conditions, and to the
extent that I have felt it necessary, have retained independent legal counsel
to advise me concerning the legal effect of the Pledge Agreement and this
Spousal Joinder and Consent.

 

I
understand and acknowledge that the Administrative Agent is relying on the
validity and accuracy of this Spousal Joinder and Consent in entering into the
Pledge Agreement.

 

Date:       as of August     ,
2007

 

	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
  Printed
  Name:   Sandra W. Terner

  	
   

  

 

[First Lien Pledge Agreement – Terner]

 

 

Exhibit A
to Pledge Agreement

 

Description
of Collateral

 

Pledged
equity:

 

	
  Pledged Entity

  	
   

  	
  Class of Stock

  	
   

  	
  Stock

  Certificate #

  	
   

  	
  Number of

  Shares

  	
   

  	
  Percentage of

  Outstanding

  Shares

  	
   

  
	
  Prospect Medical Group, Inc., a
  California professional corporation

  	
   

  	
  Common

  	
   

  	
  47

  	
   

  	
  4,000

  	
   

  	
  100

  	
  %

  
	
  Nuestra Familia Medical Group, Inc., a
  California professional corporation

  	
   

  	
  Common

  	
   

  	
  100

  	
   

  	
  839.02

  	
   

  	
  55.02

  	
  %

  

 

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.Exhibit 10.38

 

Execution Copy

 

SECOND LIEN PLEDGE AGREEMENT

 

1.           GRANT OF SECURITY
INTEREST.

 

(a)           The
undersigned Jacob Y. Terner, M.D., an individual (“Terner” or the “Pledgor”)
hereby irrevocably and unconditionally grants a second priority 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”).  Capitalized terms used herein, but not
defined herein, shall have the respective meanings set forth in the Credit
Agreement (as defined below).  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”).

 

(b)           Notwithstanding
anything contained herein to the contrary, the liens and security interests
granted to the Administrative Agent, for the benefit of the Lenders, pursuant
to this Agreement, and the exercise of any right or remedy by the
Administrative Agent, for the benefit of the Lenders, under this Agreement, are
subject to the provisions of the Intercreditor Agreement. In the event of any
conflict between the terms of the Intercreditor Agreement and this Agreement,
the terms of the Intercreditor Agreement shall govern and control.

 

2.           INDEBTEDNESS.

 

(a)           The
Collateral secures and will secure all Indebtedness of (i) Prospect
Medical Group, Inc., a California professional corporation (“PMG”),
(ii) Prospect Medical Holdings, Inc., a Delaware corporation (“Holdings”)
and (iii) PMS, in each case, owed to the Administrative Agent and the
Lenders.  Each person or entity obligated
under any Indebtedness is sometimes referred to in this Agreement as a “Debtor”.

 

(b)            “Indebtedness”
means:

 

(i)            all
“Obligations” (as such term is defined in the Credit Agreement) under (A) that
certain Second Lien Credit Agreement (as amended, restated, modified or
otherwise supplemented, the “Credit Agreement”) dated of even date
herewith among Holdings, PMG, the Administrative Agent and the other financial
institutions from time to time party thereto (the “Lenders”), (B) the
other Loan Documents, and (C) 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
obligations and liabilities of Pledgor to the Administrative Agent hereunder,
and

 

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

 

1

 

(c)           Unless
otherwise agreed in writing, “Indebtedness” shall not include any debts,
obligations or liabilities which are or may hereafter be “consumer credit”
subject to the disclosure requirements of the Federal Truth in Lending law or
any regulation promulgated thereunder.

 

3.           COVENANTS, REPRESENTATIONS AND
WARRANTIES.   Pledgor and each Debtor
covenant, represent and warrant 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
Second Priority Lien of the Administrative Agent and the first priority
security interest of the First Lien 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 Second
Priority Lien of the Administrative Agent and the first priority security
interest of the First Lien Administrative Agent.  Pledgor is the Chief Executive Officer of
PMG, its affiliate, Holdings, and Holdings’ subsidiary PMS.  Pledgor holds title to the Collateral as an
individual and such Collateral is subject to assignable option agreements that
allow PMS and PMG, as applicable, to acquire the Collateral or designate a
successor physician as the record holder of such Collateral at any time
(collectively, as each may be amended, the “Option Agreement”).

 

(b)           Pledgor
and each Debtor shall, at PMG’s expense, take all actions necessary or
advisable from time to time to maintain the Second Priority Lien and perfection
thereof 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
and each Debtor agree to cause PMG, and PMG 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)            Pledgor
resides and has for the four month period preceding the date hereof resided in
the state specified on the signature page hereof.  Pledgor shall give the Administrative Agent
at least thirty (30) days notice before changing the location of his residence.

 

4.           REPRESENTATIONS, WARRANTIES AND
COVENANTS REGARDING EQUITY SECURITIES COLLATERAL.  Pledgor and each Debtor hereby represent,
warrant and covenant the following with respect to any equity securities
comprising any or all of the Collateral (collectively, the “Equity
Securities”) and covenant and agree 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:

 

2

 

(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).

 

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 Second Priority Lien 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 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; (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.

 

3

 

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”):

 

(i)            An
“Event of Default” under the Credit Agreement (as such term is defined in the
Credit Agreement) occurs and is continuing.

 

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

 

(iii)          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.

 

(iv)          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 the Credit
Agreement or any other agreement or instrument evidencing, securing or executed
or delivered in connection with the Indebtedness beyond any grace period
provided with respect thereto.

 

(v)           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.

 

(vi)          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.

 

4

 

(ii)          Exercise as to any or all of the Collateral all the rights,
powers and remedies of an owner, subject to the provisions of Section 6 of
this Agreement.

 

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

 

(iv)         Subject to applicable Laws (including, without limitation,
securities laws and regulations), 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.

 

(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.

 

(ix)         If requested by the Administrative Agent,
Holdings, PMS and/or PMG will direct Pledgor (whether pursuant to the Option
Agreement or otherwise), or his estate, as the case may be, to sell and
Pledgor, or his estate, as the case may be, shall promptly sell all (or any
portion as may be directed by the Administrative Agent) of the Collateral to
such person(s) as Holdings, PMS and PMG shall in their reasonable
discretion direct, subject to the reasonable approval of Administrative Agent
(the “New Shareholder(s)”).  If requested by the Administrative Agent,
such New Shareholder(s) shall execute and deliver to the Administrative
Agent a pledge agreement and such other agreements, documents and instruments
as the Administrative Agent and the Lenders may request evidencing or relating
to the Collateral, each in form and substance satisfactory to the
Administrative Agent.

 

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
the Debtors, on a joint and several basis, under Section 13.  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

 

5

 

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 person or entity, (iii) proceed
against or exhaust any collateral in any order and in any manner it so elects
or (iv) pursue any other remedy in the Administrative Agent’s power.  Pledgor waives any defense arising by reason
of (i) any disability or other defense of any Debtor or any other person, (ii) the
cessation from any cause whatsoever of the liability of any Debtor or any other
person, (iii) any lack of validity or enforceability of the Credit
Agreement, any other document of consistence executed in connection herewith or
any other agreement or instrument governing or evidencing any Secured
Obligations, (iv) the insolvency of any Debtor or any other person or (v) any
other circumstance which might otherwise constitute a defense available to, or
a discharge of, Pledgor.

 

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 any 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; (iii) apply the proceeds of any
Collateral to the Indebtedness in any order and in any manner it so elects and (iv) release
or substitute any 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 each Debtor and of all circumstances which
bear upon the risk of nonpayment or the risk of a margin call or liquidation of
the Collateral.

 

Pledgor
understands and acknowledges that if the Administrative Agent forecloses
judicially or nonjudicially against any real property security for the
Indebtedness, that foreclosure could impair or 

 

6

 

destroy any ability that
Pledgor may have to seek reimbursement, contribution, or indemnification from
any Debtor or others based on any right Pledgor may have of subrogation,
reimbursement, contribution, or indemnification for any amounts paid by Pledgor
under this Agreement.  Pledgor further understands
and acknowledges that in the absence of this paragraph, such potential
impairment or destruction of the Pledgor’s rights, if any, may entitle Pledgor
to assert a defense to this Agreement based on Section 580d of the
California Code of Civil Procedure as interpreted in Union Bank v. Gradsky,
265 Cal.App.2d 40 (1968). By executing this Agreement, Pledgor freely,
irrevocably, and unconditionally: (i) waives and relinquishes that defense
and agrees that Pledgor will be fully liable under this Agreement even though
the Administrative Agent or any other person may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
Indebtedness; (ii) agrees that Pledgor will not assert that defense in any
action or proceeding which the Administrative Agent or any other person may
commence to enforce this Agreement; (iii) acknowledges and agrees that the
rights and defenses waived by Pledgor in this Agreement include any right or
defense that the Pledgor may have had or be entitled to assert based on or arising
out of any one or more of Sections 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledges
and agrees that the Administrative Agent and each other Lender is relying on
this waiver in creating the Indebtedness, and that this waiver is a material
part of the consideration which the Administrative Agent and each Lender is
receiving for creating the Indebtedness.

 

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 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 any Debtor or any one or more of them to the Administrative
Agent and the Lenders, including that

 

7

 

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 any Debtor or any one or more of them, or any other event or
proceeding affecting any 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
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
the Debtors, on a joint and several basis, 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 and
each Debtor to the respective addresses or facsimile numbers for notices set
forth for Pledgor and each Debtor below or across from its signature below or
at such other address or facsimile number as shall be designated by Pledgor or
such Debtor 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 either Pledgor’s or Holdings’ address or facsimile number for notices
is not entered below the respective Person has not otherwise designated such
address or facsimile number to the 

 

8

 

Administrative Agent in
writing, then the address and/or facsimile number for such Person in the
Administrative Agent’s records shall be deemed the address or facsimile for
notices to such Person.  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.         GOVERNING
LAW; JURISDICTION; JURY TRIAL, ETC.

 

(a)           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

(b)           SUBMISSION TO JURISDICTION.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND
UNCONDITIONALLY SUBMIT, FOR HIMSELF/ITSELF AND THE COLLATERAL, TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN
BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN
DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, IN SUCH FEDERAL COURT.  EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER
LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER
OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER HOLDINGS,
PLEDGOR OR THE COLLATERAL IN THE COURTS OF ANY JURISDICTION.

 

(c)           WAIVER OF VENUE.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS
SECTION.  EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.

 

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.  NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY 

 

9

 

PARTY
HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

 

(e)            WAIVER OF JURY
TRIAL.  EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

(f)            California
Judicial Reference.  If any action or
proceeding is filed in a court of the State of California by or against any
party hereto in connection with any of the transactions contemplated by this
Agreement or any other Loan Document, (a) the court shall, and is hereby
directed to, make a general reference pursuant to California Code of Civil
Procedure Section 638 to a referee (who shall be a single active or
retired judge) to hear and determine all of the issues in such action or
proceeding (whether of fact or of law) and to report a statement of decision,
provided that at the option of any party to such proceeding, any such issues
pertaining to a “provisional remedy” as defined in California Code of Civil
Procedure Section 1281.8 shall be heard and determined by the court and (b) PMG
shall be solely responsible to pay all fees and expenses of any referee
appointed in such action or proceeding.

 

16.         INDEMNITY.  Each Debtor shall jointly and severally
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.

 

17.         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 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.

 

10

 

(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. 
Pledgor agrees to furnish any such information to the Administrative
Agent promptly upon request.  Pledgor
also ratifies Pledgor’s 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 each 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 Second Priority Lien, 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)          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.

 

(e)           This Agreement shall benefit the Administrative Agent’s
successors and assigns and shall bind each of Pledgor’s and each Debtor’s
successors and assigns, except that none of the Debtors or Pledgor may assign
their respective rights or obligations under this Agreement.

 

(f)           No failure by the Administrative Agent or any Lender to
exercise, and no delay by any such Person in exercising, any right, remedy,
power or privilege hereunder, under the Credit Agreement or under any other
Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.  The rights,
remedies, powers and privileges herein provided and provided under the Credit
Agreement and each other Loan Document are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.

 

(g)          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.

 

(h)          This Agreement and any other documents executed or
delivered in connection herewith including, but not limited to the
Intercreditor Agreement,  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.

 

11

 

18.         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.

 

[Signature Pages Follow]

 

12

 

Executed
as of the      day of August, 2007.

 

	
   

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

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  Bank
  of America, N.A.

  
	
   

  	
  Agency
  Management

  
	
   

  	
  800
  Fifth Avenue, Floor 32

  
	
   

  	
  WA1-501-32-37

  
	
   

  	
  Seattle,
  WA  98104

  
	
   

  	
  ATTN:
  Tiffany Shin

  
					

 

[Second Lien Pledge Agreement – Terner]

 

 

	
  Pledgor’s
  Residence  

  	
  PLEDGOR:
  

  
	
   

  	
   

  
	
  California
  

  	
   

  
	
   

  	
  Signature
  

  
	
   

  	
   

  
	
  Address
  for Notices to Pledgor:  

   

  c/o
  Prospect Medical Group, Inc.  

  400
  Corporate Pointe, Suite 525  

  Culver
  City, California 90230  

  	
  Printed
  Name: Jacob Y. Terner, M.D.  

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address
  for Notices to Holdings, PMG and PMS:  

   

  	
  Agreed
  to as of the date hereof:  

  PROSPECT
  MEDICAL GROUP, INC.  

  
	
  c/o
  Prospect Medical Group, Inc.  

  	
   

  
	
  400
  Corporate Pointe, Suite 525  

  	
  By:
  

  	
   

  
	
  Culver
  City, California 90230

  	
  Name:
  

  
	
   

  	
  Title:
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT
  MEDICAL HOLDINGS, INC.  

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:
  

  
	
   

  	
  Title:
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT
  MEDICAL SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  
	
   

  	
  Name:
  

  
	
   

  	
  Title:
  

  

 

[Second Lien Pledge Agreement – Terner]

 

 

SPOUSAL
JOINDER AND CONSENT

 

I
am the spouse of Jacob Y. Terner, M.D. (“Terner”).  To the extent that I have any interest in any
of the Collateral (as that term is defined in the attached Second Lien Pledge
Agreement dated as of August 8, 2007 between Terner and Bank of America,
N.A., as administrative agent (the “Pledge Agreement”)), I hereby join
in the Pledge Agreement and agree to be bound by its terms and conditions to
the same extent as my spouse.  I have
read the Pledge Agreement, understand its terms and conditions, and to the
extent that I have felt it necessary, have retained independent legal counsel
to advise me concerning the legal effect of the Pledge Agreement and this
Spousal Joinder and Consent.

 

I
understand and acknowledge that the Administrative Agent is relying on the
validity and accuracy of this Spousal Joinder and Consent in entering into the
Pledge Agreement.

 

Date:       as of August     ,
2007

 

	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
  Printed
  Name:   Sandra W. Terner

  	
   

  

 

[Second Lien Pledge Agreement – Terner]

 

 

Exhibit A
to Pledge Agreement

 

Description
of Collateral

 

Pledged
equity:

 

	
  Pledged Entity

  	
   

  	
  Class of Stock

  	
   

  	
  Stock

  Certificate #

  	
   

  	
  Number of

  Shares

  	
   

  	
  Percentage of

  Outstanding

  Shares

  	
   

  
	
  Prospect Medical Group, Inc., a
  California professional corporation

  	
   

  	
  Common

  	
   

  	
  47

  	
   

  	
  4,000

  	
   

  	
  100

  	
  %

  
	
  Nuestra Familia Medical Group, Inc., a
  California professional corporation

  	
   

  	
  Common

  	
   

  	
  100

  	
   

  	
  839.02

  	
   

  	
  55.02

  	
  %

  

 

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.

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