Exhibit 10.4


 


Execution Copy


 


FIRST AMENDMENT TO
FORBEARANCE AGREEMENT


 


THIS FIRST AMENDMENT TO
FORBEARANCE AGREEMENT (this “Amendment”) is made and entered into as of
this 31st day of March, 2008, 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 “First Lien Administrative Agent”) on behalf of itself and
the other lenders party to the Credit Agreement defined below (the “First
Lien Lenders”).


 


RECITALS


 


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


 


WHEREAS, as of the date hereof,
certain Defaults and Events of Default exist under the First Lien Credit
Agreement and, which as a result of such Defaults and Events of Default, gave
rise to the First Lien Lenders and the First Lien Administrative Agent having
the right, among other things, to declare the commitment of each First Lien
Lender to make Loans to be terminated and to exercise any and all other
remedies available to the First Lien Lenders under the First Lien Credit
Agreement;


 


WHEREAS, the Borrowers, the
First Lien Administrative Agent and the First Lien Lenders entered into a
Forbearance Agreement on February 13, 2008 (as amended hereby, and may be
further amended, restated supplemented or otherwise modified, the “Forbearance
Agreement”) pursuant to which the First Lien Lenders and the First Lien
Administrative Agent agreed to forbear from exercising such rights for a
limited period of time provided that Borrowers satisfied certain conditions
contained within such Forbearance Agreement;


 


WHEREAS, the Borrowers have
advised the First Lien Administrative Agent that they will be unable to deliver
the Required Reporting Package (as such term is defined in the Forbearance
Agreement) by a time sufficient to allow a borrowing under the Revolving Credit
Facility in accordance with the terms of the Forbearance Agreement, and
accordingly, the Borrowers have requested that they be permitted to borrow
under the Revolving Credit Facility in advance of their delivery of the
Required Reporting Package;


 


WHEREAS,
the First Lien Lenders and the First Lien Administrative Agent are willing to
grant such request on the terms and conditions set forth in this Amendment;


 

















 


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


 


ARTICLE I


 


AMENDMENT TO THE FORBEARANCE AGREEMENT


 


Section 1.1             Definitions.           All capitalized terms used and not
defined herein shall have the meanings assigned thereto in the Credit Agreement
and/or the Forbearance Agreement, as applicable.


 


Section 1.2             Amendment.


 


Section 2.1 of the
Forbearance Agreement is hereby amended by deleting subsection “(c)” of such
section in its entirety and replacing such subsection with the following:


 


“(c)  no Revolving Credit Borrowing may be requested after March 31st,
2008; (or, if the Forbearance Period is extended to April 10, 2008 in
accordance with Section 1.4(b) above, April 4, 2008);”


 


ARTICLE II


 


CONDITIONS TO EFFECTIVENESS


 


Section 2.1         Conditions Precedent.  This Amendment shall become effective as of
the date first written above upon the satisfaction of each of the following
conditions:


 


(a)           the
First Lien Administrative Agent shall have received duly executed counterparts
of this Amendment from each of the Borrowers, the Guarantors and written
confirmation of agreement to the terms hereof by the Required Lenders; and


 


(b)           the Second Lien Administrative Agent
and the Second Lien Lenders shall have consented in writing to this Amendment.


 


ARTICLE III


 


MISCELLANEOUS


 


Section 3.1         Representations and Warranties.  Each Loan Party hereby represents and
warrants to the First Lien Administrative Agent and the First Lien Lenders that
(a) each Loan Party has the legal power and authority to execute and
deliver this Amendment; (b) the officers of each Loan Party executing this
Amendment 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 


 


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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 First Lien Credit Agreement, nor
will any occur immediately after the execution and delivery of this Amendment
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 First Lien Credit
Agreement or any other Loan Document; (f) this Amendment and each document
executed by each Loan Party in connection herewith 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 3.2         Release.  Each Loan Party hereby waives and releases
the First Lien Administrative Agent and the First 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 Amendment 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 3.2 shall not constitute a release of the obligations
of the First Lien Administrative Agent or any First 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 3.3         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 3.2 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 3.4         Loan Documents Unaffected.  Except as otherwise specifically provided
herein, all provisions of the First Lien Credit Agreement (including without
limitation, Section 10.07 thereof) and the other Loan Documents
(including, without limitation, the Forbearance Agreement and the Intercreditor
Agreement) shall remain in full force and effect and be 


 


3

















 


unaffected
hereby.  The parties hereto acknowledge
and agree that this Amendment constitutes a “Loan Document” under the terms of
the First Lien Credit Agreement.


 


Section 3.5         Guarantor Acknowledgement.  Each Guarantor, by signing this Amendment:


 


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


 


(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 Amendment;


 


(c)           represents
and warrants to the First Lien Administrative Agent and the First Lien Lenders
that all representations and warranties made by such Guarantor and contained in
this Amendment 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
Amendment 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 Amendment, such Guarantor is not required by the terms of the
First Lien Credit Agreement or any other Loan Document to which such Guarantor
is a party to consent to the terms of this Amendment and (ii) nothing in
the First Lien Credit Agreement, this Amendment, the Forbearance Agreement or
any other Loan Document shall be deemed to require the consent of such
Guarantor to any future amendments or modifications to the First Lien Credit
Agreement.


 


Section 3.6         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
Amendment other than those that are set forth in this Amendment.  This Amendment has been entered into by each
Borrower and each Guarantor freely, voluntarily, with full knowledge, and
without duress, and, in executing this Amendment, 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 First Lien
Administrative Agent.  Each Borrower and
each Guarantor agrees that the consideration received by the Borrowers under
this Amendment has been actual and adequate.


 


Section 3.7         No Course of Dealing.  Each Loan Party acknowledges and agrees that,
(a) this Amendment is not intended to, nor shall it, establish any course
of dealing between the Loan Parties, the First Lien Administrative Agent and
the First Lien Lenders that is inconsistent with the express terms of the First
Lien Credit Agreement, the Forbearance Agreement, or any other Loan Document, (b) notwithstanding
any course of dealing between the Loan Parties, the First Lien Administrative
Agent and the First Lien Lenders prior to the date hereof, except as set forth
herein, the First Lien Lenders shall not be obligated to make any Loan, except
in accordance with the terms and conditions of this Amendment and the First
Lien Credit 


 


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Agreement, and
(c) except with respect to the limited forbearance granted in the
Forbearance Agreement specifically relating to the Existing Events of Default,
neither the First Lien Administrative Agent nor any First 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 First Lien Administrative Agent and the First Lien Lenders with respect to
the exercise of their respective rights and remedies under the terms of the
First Lien Credit Agreement.


 


Section 3.8         No Waiver.  Each Loan Party acknowledges and agrees that (a) except
as expressly provided herein, this Amendment shall not operate as a waiver of
any right, power or remedy of the First Lien Administrative Agent or the First
Lien Lenders under the First Lien Credit Agreement or any Loan Document, nor
shall it constitute a continuing waiver at any time, (b) the First 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 First Lien Administrative Agent or the First
Lien Lenders under the First Lien Credit Agreement, any Loan Document or
applicable law.  In addition, the First
Lien Administrative Agent shall have the right to waive any condition or
conditions set forth in this Amendment, the First 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 First Lien Administrative
Agent may have against any Loan Party.


 


Section 3.9         Survival.  All representations, warranties, covenants,
agreements, releases and waivers made by or on behalf of any Loan Party under
this Amendment shall survive and continue after the expiration or termination
of the Forbearance Period.


 


Section 3.10       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 3.11       Governing Law.  THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.


 


Section 3.12       Entire Agreement.  This Amendment (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 3.13       Counterparts.  This Amendment 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 Amendment.


 


Section 3.14       Severability Of Provisions; Captions;
Attachments.  Wherever possible each
provision of this Amendment shall be interpreted in such manner as to be
effective and 


 


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valid under
applicable law.  Any provision of this
Amendment that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
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
Amendment.  Each schedule or exhibit
attached to this Amendment shall be incorporated herein and shall be deemed to
be a part hereof.


 


Section 3.15       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
AMENDMENT OR ANY DOCUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS RELATED THERETO.


 


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


 


 


	
   

  	
  PROSPECT MEDICAL HOLDINGS,
  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT MEDICAL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
   

  	
  BANK OF AMERICA, N.A

  
	
   

  	
  in its capacity as First Lien Administrative

  
	
   

  	
  Agent and on behalf of the Required Lenders

  
	
   

  	
  under the First Lien Credit Agreement

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title: