Exhibit 10.3


 


Execution Version


 


SECOND LIEN FORBEARANCE AGREEMENT


 


THIS SECOND
LIEN FORBEARANCE AGREEMENT (as the same may from time to time be amended,
restated or otherwise modified, this “Agreement”) is made as of February 13,
2008 and entered into by and among Prospect Medical Holdings, Inc. (“Holdings”)
and Prospect Medical Group, Inc. (“Prospect” and, collectively with
Holdings, the “Borrowers” and each, individually, a “Borrower”),
Bank of America, N.A., as Administrative Agent (in such capacity, the “Second
Lien Administrative Agent”), and the lenders party hereto (collectively,
the “Second Lien Lenders”).


 


RECITALS


 


WHEREAS, the
Borrowers, the Second Lien Lenders and the Second Lien Administrative Agent
have entered into that certain Second Lien Credit Agreement dated as of August 8,
2007 (as amended, restated, supplemented or otherwise modified, the “Second
Lien Credit Agreement”), pursuant to which the Second Lien Lenders have
agreed to make the Term Loan (such term, together with each other capitalized
term used in this Agreement but not defined in this Agreement, shall be defined
in accordance with the Second Lien Credit Agreement) and other extensions of
credit, all upon the terms and conditions set forth in the Second Lien Credit
Agreement;


 


WHEREAS, the
Second Lien Administrative Agent, inter alia, is a party to the
Intercreditor Agreement;


 


WHEREAS, as of
the date hereof, certain Defaults and Events of Default exist under the Second
Lien Credit Agreement and, as a result of such Defaults and Events of Default,
the Second Lien Lenders and the Second Lien Administrative Agent have the
right, among other things and subject to the terms and conditions of the
Intercreditor Agreement, to exercise any and all remedies available to the
Second Lien Lenders under the Second Lien Credit Agreement;


 


WHEREAS, the
Borrowers have requested that the Second Lien Lenders and the Second Lien
Administrative Agent forbear from exercising such rights for a limited period
of time; and


 


WHEREAS, the
Second Lien Lenders and the Second Lien Administrative Agent are willing to
forbear from exercising such rights for a limited period of time on the terms
and conditions set forth in this Agreement;


 


NOW,
THEREFORE, in consideration of the foregoing, the parties agree as follows:


 


ARTICLE I


 


FORBEARANCE


 


Section 1.1.                                   Outstanding
Indebtedness.  Each Borrower
acknowledges and confirms (a) that Exhibit A hereto sets
forth, as of the date hereof, the aggregate principal amount of the outstanding
Term Loans, and (b) that such amount is not subject to any defense,
counterclaim, recoupment or offset of any kind.


 

















 


Section 1.2.                                   Existing
Defaults.  Each Borrower acknowledges
that the Borrowers have failed to comply with the provisions of the Second Lien
Credit Agreement as set forth under the heading “January 28th
Events of Defaults” on Exhibit B hereto (collectively, the “January 28
Events of Default”).  Each Borrower
further acknowledges (and has so advised the Second Lien Administrative Agent)
that it anticipates that it may fail during the Forbearance Period (as defined
herein) to comply with the provisions of the Second Lien Credit Agreement as
set forth under the heading “Anticipated Events of Default” on Exhibit B
hereto (collectively, the “Anticipated Events of Default” and together
with the January 28 Events of Default, the “Existing Events of Default”).


 


Section 1.3.                                   Continuing
Defaults.  With respect to each of
the Existing Events of Default, each Borrower acknowledges that (a) such
Existing Event of Default is continuing and has not been waived by virtue of
any previous actions (or failure to act) by the Second Lien Administrative
Agent or the Second Lien Lenders through any course of conduct or course of
dealing or otherwise, (b) as a result of the existence of such Existing Event
of Default, the Second Lien Lenders and the Second Lien Administrative Agent,
pursuant to Section 8.02 of the Second Lien Credit Agreement and the other
Loan Documents and subject to the Intercreditor Agreement, have the right to,
among other things, accelerate the maturity of the Term Loan and all of the
other Obligations.


 


Section 1.4.            Forbearance
and Forbearance Period.


 


(a)                                  The
Second Lien Lenders and the Second Lien Administrative Agent, by executing this
Agreement and upon the satisfaction of the conditions set forth in Article II
hereof, hereby agree to forbear from exercising their rights and remedies that
exist by virtue of the Existing Events of Default for the period from January 28,
2008 through and including March 31, 2008 (the “Forbearance Period”)
subject to the continuing satisfaction during the Forbearance Period of each of
the following conditions:


 


(i)                                     after
giving effect to the terms of this Agreement, other than the Existing Events of
Default, no other Default or Event of Default shall exist under the Second Lien
Credit Agreement or any Loan Document;


 


(ii)                                  during
the Forbearance Period, other than the Existing Events of Default, no other
Default or Event of Default shall occur or arise under the Second Lien Credit
Agreement or any Loan Document and no default or event of default shall occur
or arise under this Agreement;


 


(iii)                               neither
the First Lien Administrative Agent nor the First Lien Lenders shall exercise
or seek to exercise any of their respective rights or remedies under the First
Lien Loan Documents or take or seek to take any action that violates or is
inconsistent with the terms of the Intercreditor Agreement or is inconsistent
with the terms of the forbearance agreement described in Section 3.1(c) hereof;


 


2

















 


(iv)                              the
first lien forbearance agreement as described in Section 3.1(c) hereof
shall not have expired by its terms and the “Forbearance Period” set forth
therein shall not have terminated; and


 


(v)                                 the
Borrowers shall be in compliance with their obligations under the Fee Letter
(as defined in Section 3.1(d) hereof).


 


(b)                                 Unless
the Forbearance Period has been previously terminated in accordance with the
terms hereof, so long as the Second Lien Lenders and the Second Lien
Administrative Agent shall have received the Required Reporting Package (as
defined below) as soon as available and in any event no later than March 31,
2008, the Forbearance Period shall be automatically extended until April 10,
2008 (such date, the “Extended Forbearance Period Termination Date”).


 


“Required
Reporting Package” shall mean the following, in each case in form and
substance satisfactory to the Second Lien Lenders and the Second Lien
Administrative Agent:


 


(i)                                     a
final draft of Holdings’ and its Subsidiaries audited financial statements for
the fiscal year ended September 30, 2007 all prepared in accordance with Section 6.01(a) of
the Second Lien Credit Agreement, which such draft audited financial statements
will only require the delivery of a mutually acceptable waiver and amendment
from the First Lien Lenders and the Second Lien Lenders with respect to the
Existing Events of Default in order for the audit to be finalized and
accompanied by an unqualified opinion of Holdings’ auditor;


 


(ii)                                  unaudited
copies of Holdings’ and its Subsidiaries quarterly financial statements for the
fiscal quarter ended December 31, 2007, all prepared in accordance with Section 6.01(b) of
the First Lien Credit Agreement;


 


(iii)          updated
copies of all financial information previously provided under Sections 6.01(b) and
6.01(c) of the Second Lien Credit Agreement (in each case, together with
the related Compliance Certificate referred to in Section 6.02(b) of
the Second Lien Credit Agreement), in each case revised to give effect to the
restatement of the financial statements of Holdings and its Subsidiaries
relating to the 2007 fiscal year;


 


(iv)                              updated
copies of the historical monthly financial statements for Holdings and its
Subsidiaries for the period of October 2006 through the closing date of
the Second Lien Credit Agreement;


 


(v)                                 Compliance
Certificates to be delivered in connection with each set of financial
statements referenced in Section 1.4(b)(i) and Section 1.4(b)(ii) above;


 


(vi)                              revised
financial projections for fiscal year 2008 and fiscal year 2009, including (i) a
financial (cash flow) budget (i.e., a schedule of anticipated revenue and
expenditures) prepared on a monthly basis for fiscal year 2008 prepared in
accordance with Section 6.01(d) of the Second Lien Credit Agreement, (ii) a



 


3

















 


financial
(cash flow) budget (i.e., a schedule of anticipated revenue and expenditures)
prepared on a quarterly basis for fiscal year 2009 prepared in accordance with Section 6.01(d) of
the Second Lien Credit Agreement, (iii) a projected EBITDA run rate for
fiscal year 2008 and fiscal year 2009 and (iv) a written assessment by
management of the run-rate revenue and run-rate EBITDA by business line, which
assessment bridges to the financial information in respect of the period ended March 31,
2007, which such financial information was provided to the Second Lien Lenders
prior to closing of, and upon which the Second Lien Lenders relied in entering
into the Second Lien Credit Agreement; and


 


(vii)                           a
monthly report that shows projected versus actual comparison of the items
listed on the cash flow budget for 2008.


 


(c)                                  Each
Borrower acknowledges and agrees that, upon the failure of any Borrower to
satisfy any of the foregoing conditions at any time during the Forbearance
Period, the Forbearance Period shall automatically terminate, and each such
failure shall immediately constitute an Event of Default under the Second Lien
Credit Agreement.  The Second Lien
Administrative Agent agrees to provide the Borrowers promptly with notice of
the termination of the Forbearance Period; provided, however,
that the failure to give such notice shall not affect the automatic termination
of the Forbearance Period or its immediate constitution of an Event of Default,
and the Borrowers hereby waive any such notice. 
Upon termination of the Forbearance Period, the Second Lien
Administrative Agent and the Second Lien Lenders, subject to the Intercreditor
Agreement, shall be permitted to exercise any and all rights and remedies that
exist with respect to the Existing Events of Default.


 


ARTICLE II


 


OTHER AGREEMENTS


 


Section 2.1.                                   Default
Interest  During the Forbearance
Period, all outstanding Obligations under the Second Lien Credit Agreement
shall bear interest at the Default Rate.


 


Section 2.2.                                   Intercreditor
Agreement.  The Second Lien
Administrative Agent and the Second Lien Lenders acknowledge and agree that (i) they
consent to the first lien forbearance agreement described in Section 3.1(c) hereof
and the terms and conditions thereof; (ii) in accordance with the terms
and conditions of this Agreement, that, during the Forbearance Period, the
Second Lien Administrative Agent shall be prohibited from issuing to the First
Lien Administrative Agent the notice contemplated in the definition of “Second
Lien Enforcement Date” set forth in the Intercreditor Agreement; (iii) the
effectiveness of neither the first lien forbearance agreement described in Section 3.1(c) hereof
nor of this Agreement shall constitute, or be deemed to constitute, the
commencement of a “Standstill Period” as such term is defined in Section 3.01(a)(i)(A) of
the Intercreditor Agreement; (iv) the first lien forbearance agreement
described in Section 3.1(c) of hereof constitutes a “delay in or
refrain from exercising . . . right[s] or remed[ies] against [the] Borrowers”
by the First Lien Administrative Agent and the First Lien Lenders within the
meaning of Section 7.03(b)(v) of the Intercreditor Agreement; (v) 
the 


 


4

















 


Intercreditor Agreement remains
in full force and effect (including to the extent that it is modified by clause
(ii) hereof); and (vi) the First Lien Administrative Agent and the
First Lien Lenders are third-party beneficiaries of the Second Lien
Administrative Agent and the Second Lien Lenders’ obligations under this Section 2.2.


 


Section 2.3.                                   Consultant
Matters.  Further to their
obligations under Sections 6.10 and 10.04 of the Second Lien Credit Agreement,
the Borrowers and their Subsidiaries (a) acknowledge and consent to the
retention of a third-party consultant or consultants hired on behalf of the
Second Lien Lenders (the “Consultant”), (b) acknowledge and agree
that they will be responsible for the payment of all fees and expenses of such
Consultant, (c) agree to fully cooperate with such Consultant and allow
such Consultant to: visit and inspect any of the properties of the Borrowers
and their Subsidiaries; examine corporate, financial and operating records of
the Borrowers and their Subsidiaries; make copies thereof or abstracts
therefrom; and discuss the affairs, finances and accounts of the Borrowers and
their Subsidiaries with their respective directors, officers, and independent
public accountants, and (d) shall, beginning on February 13, 2008 and
on a bi-weekly basis thereafter, provide to the Consultant (to be forwarded to
the Second Lien Administrative Agent and the Second Lien Lenders) on a rolling
basis a thirteen-week financial (cash-flow) budget (i.e., schedule of
anticipated revenue and expenditures) and shall, when they update such budget,
also provide to the Consultant (to be forwarded to the Second Lien
Administrative Agent and the Second Lien Lenders) a schedule that shows a
projected versus actual comparison of the items set forth in the budget over
the course of (i) the preceding two weeks; and (ii) the period
beginning on February 18, 2008.


 


Section 2.4.                                   Modification
of Maturity Date.  In the event that
the Borrowers, the First Lien Lenders and the Second Lien Lenders do not reach
a mutually acceptable waiver and amendment with respect to the Existing Events
of Default by the expiration or termination of the Forbearance Period (as such
may be extended in accordance with the terms and conditions hereof to the
Extended Forbearance Period Termination Date or as such Extended Forbearance
Period Termination Date may be extended by the Required Lenders under each of
the First Lien Credit Agreement and the Second Lien Credit Agreement), the
Maturity Date under the Second Lien Credit Agreement shall be June 30,
2008.


 


ARTICLE III


 


CONDITIONS TO EFFECTIVENESS


 


Section 3.1.                                   Conditions
Precedent.  This Agreement shall
become effective as of the date first written above upon the satisfaction of
each of the following conditions:


 


(a)                                  the
Second Lien Administrative Agent shall have received duly executed counterparts
of this Agreement from each of the Borrowers, the Guarantors and the Second
Lien Lenders;


 


(b)                                 the
Borrowers shall have paid all professional fees and expenses of the Second Lien
Administrative Agent and the Second Lien Lenders in connection with this 


 


5

















 


Agreement, the
Loan Documents and the transactions contemplated hereby (including all fees and
expenses of Winston & Strawn LLP in its capacity as counsel to the
Second Lien Administrative Agent and the Arranger); pursuant to wire transfer
instructions to be provided by the First Lien Administrative Agent.


 


(c)                                  the
First Lien Administrative Agent and the First Lien Lenders shall have entered
into a forbearance agreement with the Borrowers;


 


(d)                                 that
certain fee letter among the Borrowers, Banc of America Securities, LLC and
Bank of America, N.A. dated January 28, 2008 (the “Fee Letter”)
shall have been executed and delivered by the Borrowers and the Borrowers shall
be in compliance with their obligations thereunder as of the date thereof; and


 


(e)                                  the
Borrowers shall have paid a forbearance fee (the “Forbearance Fee”) in
an amount equal to 50 basis points times the aggregate outstanding
principal amount of the Term Loan as of the effective date of this Agreement).


 


(f)                                    In
furtherance of the Borrowers’ obligations under Section 10.04(a) of
the Second Lien Credit Agreement, the Borrowers shall have paid, to Winston &
Strawn LLP, counsel to the Second Lien Administrative Agent, $75,000.00 in
immediately available funds (pursuant to wire transfer instructions to be
provided by the Second Lien Administrative Agent) as payment for future
services to be provided by Winston & Strawn LLP to the Second Lien
Administrative Agent in connection with the Loans, this Agreement, the Second
Lien Credit Agreement and the other Loan Documents.


 


(g)                                 In
furtherance of the Borrowers’ obligations under Section 10.04(a) of
the Second Lien Credit Agreement, the Borrowers shall have paid, to the
Consultant $40,000 in immediately available funds (pursuant to wire transfer
instructions to be provided by the Second Lien Administrative Agent) as payment
for future services to be provided by the Consultant to the Second Lien
Administrative Agent in connection with the Loans, this Agreement, the Second
Lien Credit Agreement and the other Loan Documents.


 


ARTICLE IV


 


MISCELLANEOUS


 


Section 4.1.                                   Representations
and Warranties.  Each Loan Party
hereby represents and warrants to the Second Lien Administrative Agent and the
Second Lien Lenders that (a) each Loan Party has the legal power and
authority to execute and deliver this Agreement; (b) the officers of each
Loan Party executing this Agreement have been duly authorized to execute and
deliver the same and bind each Loan Party with respect to the provisions
hereof; (c) the execution and delivery hereof by each Loan Party and the
performance and observance by each Loan Party of the provisions hereof do not
violate or conflict with any organizational document of any Loan Party or any
law applicable to any Loan Party or result in a breach of any provision of or
constitute a default under any other agreement, instrument or document binding
upon or enforceable against any Loan Party; (d) except with respect to the
Existing Events of Default, no Default or Event of Default exists under the
Second Lien Credit Agreement, nor will any occur 


 


6

















 


immediately after the execution
and delivery of this Agreement or by the performance or observance of any
provision hereof; (e) no Loan Party is aware of any claim or offset
against, or defense or counterclaim to, any Loan Party’s obligations or
liabilities under the Second Lien Credit Agreement or any other Loan Document; (f) this
Agreement and each document executed by each Loan Party in connection herewith
(including, without limitation, the Fee Letter) constitute valid and binding
obligations of the applicable Loan Party in every respect, enforceable in
accordance with their terms; and (g) no Loan Party has received a notice
of default of any kind from any material account debtor or any counterparty to
a Material Contract and no material account debtor or counterparty to a Material
Contract has asserted any right of set-off, deduction or counterclaim with
respect to any account or such Material Contract, respectively.


 


Section 4.2.                                   Release.  Each Loan Party hereby waives and releases
the Second Lien Administrative Agent and the Second Lien Lenders and their
respective directors, officers, employees, agents, attorneys, affiliates and
subsidiaries (each a “Releasee”) from any and all claims, offsets,
defenses and counterclaims, known and unknown, that any Loan Party may have as
of the date of this Agreement based upon, relating to, or arising out of the
Obligations and related transactions in any way.  Each Loan Party intends the foregoing release
to cover, encompass, release and extinguish, among other things, all claims and
matters that might otherwise be reserved by California Civil Code Section 1542,
which provides as follows:


 


“A general
release does not extend to claims which the creditor does not know or suspect
to exist in his or her favor at the time of executing the release, which if
known by him or her must have materially affected his or her settlement with
the debtor.”


 


Notwithstanding the foregoing,
this Section 4.2 shall not constitute a release of the obligations
of the Second Lien Administrative Agent or any Second Lien Lender under the
Loan Documents, such waiver and release being with full knowledge and
understanding of the circumstances and effect thereof and after having
consulted legal counsel with respect thereto.


 


Section 4.3.                                   Covenant
Not to Sue.  Each Loan Party, on
behalf of itself and its successors, assigns, and other legal representatives,
hereby absolutely, unconditionally and irrevocably, covenants and agrees with
and in favor of each Releasee that it will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any Releasee on the basis of any claim
released, remised and discharged by such Loan Party pursuant to Section 4.2
above.  If any Loan Party or any of its
successors, assigns or other legal representations violates the foregoing covenant,
such Loan Party, for itself and its successors, assigns and legal
representatives, agrees to pay, in addition to such other damages as any
Releasee may sustain as a result of such violation, all attorneys’ fees and
costs incurred by any Releasee as a result of such violation.


 


Section 4.4.                                   Loan
Documents Unaffected.  Except as
otherwise specifically provided herein, all provisions of the Second Lien
Credit Agreement (including without limitation, Section 10.07 thereof) and
the other Loan Documents (including, without limitation, the Intercreditor
Agreement) shall remain in full force and effect and be unaffected hereby.  The parties hereto acknowledge and agree that
this Agreement constitutes a “Loan Document” under the terms of the Second Lien
Credit Agreement.


 


7














 


Section 4.5.                                   Guarantor
Acknowledgement.  Each Guarantor, by
signing this Agreement:


 


(a)           consents
and agrees to and acknowledges the terms of this Agreement;


 


(b)           acknowledges
and agrees that all of the Loan Documents to which such Guarantor is a party or
otherwise bound shall continue in full force and effect and that all of such
Guarantor’s obligations thereunder shall be valid and enforceable and shall not
be impaired or limited by the execution or effectiveness of this Agreement;


 


(c)           represents
and warrants to the Second Lien Administrative Agent and the Second Lien
Lenders that all representations and warranties made by such Guarantor and
contained in this Agreement or any other Loan Document to which it is a party
are true and correct in all material respects (other than such representations
and warranties that are untrue or otherwise inaccurate solely and directly as a
result of the Existing Events of Default) on and as of the date of this
Agreement to the same extent as though made on and as of such date, except to
the extent that any thereof expressly relate to an earlier date; and


 


(d)           acknowledges
and agrees that (i) notwithstanding the conditions to effectiveness set
forth in this Agreement, such Guarantor is not required by the terms of the
Second Lien Credit Agreement or any other Loan Document to which such Guarantor
is a party to consent to the terms of this Agreement and (ii) nothing in
the Second Lien Credit Agreement, this Agreement or any other Loan Document
shall be deemed to require the consent of such Guarantor to any future
amendments or modifications to the Second Lien Credit Agreement.


 


Section 4.6.                                   No
Other Promises or Inducements.  There
are no promises or inducements that have been made to any party hereto to cause
such party to enter into this Agreement other than those that are set forth in
this Agreement.  This Agreement has been
entered into by each Borrower and each Guarantor freely, voluntarily, with full
knowledge, and without duress, and, in executing this Agreement, neither any
Borrower nor any Guarantor is relying on any other representations, either
written or oral, express or implied, made to any Borrower or any Guarantor by
the Second Lien Administrative Agent. 
Each Borrower and each Guarantor agrees that the consideration received
by the Borrowers under this Agreement has been actual and adequate.


 


Section 4.7.                                   No
Course of Dealing.  Each Loan Party
acknowledges and agrees that, (a) this Agreement is not intended to, nor
shall it, establish any course of dealing between the Loan Parties, the Second
Lien Administrative Agent and the Second Lien Lenders that is inconsistent with
the express terms of the Second Lien Credit Agreement or any other Loan
Document, (b) notwithstanding any course of dealing between the Loan Parties,
the Second Lien Administrative Agent and the Second Lien Lenders prior to the
date hereof, except as set forth herein, the Second Lien Lenders shall not be
obligated to make any Loan, except in accordance with the terms and conditions
of this Agreement and the Second Lien Credit Agreement, and (c) except
with respect to the limited forbearance granted herein specifically relating to
the Existing Events of Default and as set forth in the Intercreditor Agreement,
neither the Second 


 


8

















 


Lien Administrative Agent nor any Second Lien
Lender shall be under any obligation to forbear from exercising any of its
rights or remedies upon the occurrence of any Default or Event of Default.  Nothing herein modifies the agreements among
the Second Lien Administrative Agent and the Second Lien Lenders with respect
to the exercise of their respective rights and remedies under the terms of the
Second Lien Credit Agreement.


 


Section 4.8.                                   No
Waiver.  Each Loan Party acknowledges
and agrees that (a) except as expressly provided herein, this Agreement
shall not operate as a waiver of any right, power or remedy of the Second Lien
Administrative Agent or the Second Lien Lenders under the Second Lien Credit
Agreement or any Loan Document, nor shall it constitute a continuing waiver at
any time, (b) the Second Lien Lenders shall not have any obligation to
extend the term of the Forbearance Period, (c) nothing herein shall be
deemed to constitute a waiver of any Default or Event of Default, including the
Existing Events of Default, and, except as expressly provided herein, nothing
herein shall in any way prejudice the rights and remedies of the Second Lien
Administrative Agent or the Second Lien Lenders under the Second Lien Credit Agreement,
any Loan Document or applicable law.  In
addition, the Second Lien Administrative Agent shall have the right to waive
any condition or conditions set forth in this Agreement, the Second Lien Credit
Agreement or any Loan Document, in its sole discretion, and any such waiver
shall not prejudice, waive or reduce any other right or remedy that the Second
Lien Administrative Agent may have against any Loan Party.


 


Section 4.9.                                   Survival.  All representations, warranties, covenants,
agreements, releases and waivers made by or on behalf of any Loan Party under
this Agreement shall survive and continue after the expiration or termination
of the Forbearance Period.


 


Section 4.10.                             No
Waiver of Rights. No waiver shall be deemed to be made by any party
hereunder of any of its rights hereunder unless the same shall be in writing
signed on behalf of such party.


 


Section 4.11.                             Governing Law.  THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.


 


Section 4.12.                             Entire
Agreement.  This Agreement (together
with the Fee Letter) sets forth the entire agreement and understanding among
the parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements, and undertakings of every kind and nature among them
with respect to the subject matter hereof.


 


Section 4.13.                             Counterparts.  This Agreement may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts
and by facsimile signature, and each such counterpart, when executed and
delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Agreement.


 


Section 4.14.                             Severability
Of Provisions; Captions; Attachments. 
Wherever possible each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or


 


9

















 


unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction. The captions to Sections and subsections
herein are inserted for convenience only and shall be ignored in interpreting
the provisions of this Agreement.  Each
schedule or exhibit attached to this Agreement shall be incorporated herein and
shall be deemed to be a part hereof.


 


Section 4.15.                             JURY
TRIAL WAIVER.  EACH OF THE
UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, AMONG THEM, OR ANY OF THEM, ARISING OUT OF, IN CONNECTION WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.


 


10

















 


IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the date
referenced in the first paragraph of this Agreement.


 


 


	
   

  	
  PROSPECT MEDICAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT MEDICAL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
   

  	
  BANK OF AMERICA, N.A

  
	
   

  	
  as Second Lien Administrative Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
  Each of the undersigned acknowledges the terms of and consents to the
  foregoing:

  
	
   

  	
   

  
	
  GUARANTORS:

  	
   

  
	
   

  	
   

  
	
  SIERRA MEDICAL MANAGEMENT, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT MEDICAL SYSTEMS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT HOSPITAL ADVISORY SERVICES, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT ADVANTAGE NETWORK, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT HOSPITALS SYSTEM, LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ALTA HOLLYWOOD HOSPITALS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ALTA LOS
  ANGELES HOSPITALS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
									



 

















 


	
  PROMED HEALTH CARE ADMINISTRATORS

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PINNACLE HEALTH RESOURCES

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT PHYSICIAN ASSOCIATES, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT HEALTH SOURCE MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT PROFESSIONAL CARE MEDICAL GROUP, INC.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
						



 

















 


	
  NUESTRA FAMILIA MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  APAC MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT NWOC MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SIERRA PRIMARY CARE MEDICAL GROUP, A
  MEDICAL CORPORATION

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  STARCARE MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PEGASUS MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ANTELOPE VALLEY MEDICAL ASSOCIATES, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				



 

















 


	
  SANTA ANA/TUSTIN PHYSICIANS GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROMED HEALTH SERVICES COMPANY

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  GENESIS HEALTHCARE OF SOUTHERN CALIFORNIA, INC., A MEDICAL GROUP

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  POMONA VALLEY MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  UPLAND MEDICAL GROUP, A PROFESSIONAL
  MEDICAL CORPORATION

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  DR. TERNER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Jacob Y. Terner, M.D.

  	
   

  
					



 














 


EXHIBIT
A


 


OUTSTANDING
INDEBTEDNESS


 


	
  As of February 11, 2008:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Second Lien Term Loan

  	
   

  	
  $

  	
  50,000,000.00

  	
   

  
						



 


A-1














 


EXHIBIT
B


 


EXISTING EVENTS OF DEFAULT


 


JANUARY 28TH EVENTS
OF DEFAULT


 


1.             Failure
of the Borrowers to deliver by January 28, 2008 to the Second Lien
Administrative Agent and the Second Lien Lenders the financial statements and
other reports and information required under Section 6.01(a) of the
Second Lien Credit Agreement (Event of Default under Section 8.01(b) of
the Second Lien Credit Agreement)


 


2.             Failure
of the Borrowers to deliver by January 28, 2008 to the Second Lien
Administrative Agent and the Second Lien Lenders the accountants certificate
and the Compliance Certificate required under Sections 6.02(a) and (b) of
the Second Lien Credit Agreement (Events of Default under Section 8.01(b) of
the Second Lien Credit Agreement)


 


ANTICIPATED
EVENTS OF DEFAULT


 


1.             Failure
of the Borrowers to deliver by February 14, 2008 to the Second Lien
Administrative Agent and the Second Lien Lenders the financial statements and
other reports and information required under Section 6.01(b) of the Second Lien Credit Agreement
(Event of Default under Section 8.01(b) of the Second Lien Credit Agreement)


 


2.             Failure
of the Borrowers to deliver by February 14, 2008 to the Second Lien Administrative Agent
and the Second Lien Lenders the Compliance Certificate required under Sections 6.02(b) of
the Second Lien Credit Agreement (Events of Default under Section 8.01(b) of
the Second Lien Credit Agreement)


 


3.             Failure of the
Borrowers to comply with the financial covenants set forth in Sections 7.11(a) and
(b) of the Second Lien Credit Agreement (Events of Default under Section 8.01(b) of
the Second Lien Credit Agreement) for the fiscal year ended September 30,
2007 and for the fiscal quarter ended December 31, 2007.