Exhibit 10.2


 


Execution Version


 


FORBEARANCE
AGREEMENT


 


THIS
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 “First
Lien Administrative Agent”), and the lenders party hereto (collectively,
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 Agreement but not defined in this Agreement, 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, as a result of such Defaults and Events of Default,
the First Lien Lenders and the First Lien Administrative Agent have 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 have requested that the First Lien Lenders and the First Lien
Administrative Agent forbear from exercising such rights for a limited period
of time; and


 


WHEREAS, the
First Lien Lenders and the First 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 all outstanding
Loans and the issued and outstanding Letters of Credit, and (b) that such
amounts are 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 First 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 First Lien Administrative Agent)
that it anticipates that it may fail during the Forbearance Period (as defined
herein) to comply with the provisions of the First 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 First Lien Administrative Agent
or the First 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 First Lien Lenders and the First Lien Administrative Agent, pursuant
to Section 8.02 of the First Lien Credit Agreement and the other Loan
Documents, have the right to, among other things, (i) terminate the
obligations and any commitment of each First Lien Lender to make any further
Loans and/or L/C Credit Extensions, (ii) accelerate the maturity of all of
the Loans and all of the other Obligations, and (iii) decline to make any
further Loans and/or L/C Credit Extensions.


 


Section 1.4             Forbearance
and Forbearance Period.


 


(a)           The
First Lien Lenders and the First 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 First 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 First Lien Credit
Agreement or any Loan Document and no default or event of default shall occur
or arise under this Agreement;


 


(iii)          neither
the Second Lien Administrative Agent nor the Second Lien Lenders shall exercise
or seek to exercise any of their respective rights or remedies under the Second
Lien Loan Documents or take or seek to take any action that violates or is
inconsistent with the terms of the Intercreditor Agreement or that otherwise
impairs or adversely affects any rights or remedies of the First Lien
Administrative Agent or the First Lien Lenders under the Loan Documents;


 


(iv)          the
second 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).


 


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(b)           Unless
the Forbearance Period has been previously terminated in accordance with the
terms hereof, so long as the First Lien Lenders and the First 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 First Lien Lenders and the First 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 First 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 First Lien Credit Agreement (in each case, together with
the related Compliance Certificate referred to in Section 6.02(b) of
the First 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 First 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 First Lien Credit Agreement, (ii) a
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 First 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



 


3

















 


of the period ended March 31,
2007, which such financial information was provided to the First Lien Lenders
prior to closing of, and upon which the First Lien Lenders relied in entering
into the First 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 First Lien
Credit Agreement.  The First 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 First Lien
Administrative Agent and the First Lien Lenders 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                                      Revolving
Loans.  During the Forbearance Period,
the Borrower shall be permitted to request Revolving Credit Loans; provided
that, (a) the Borrowers shall not request that any Revolving Credit Loans
be made if such request, if funded, would cause the Total Revolving Credit
Outstandings to exceed $6,000,000.00; (b) each Revolving Credit Borrowing (i) shall
bear interest at the Base Rate, (ii) shall be repaid in full (with accrued
interest) no later than 1:00 P.M. (Pacific) on the sixth (6th)
day following each such Revolving Credit Borrowing; (c) no Revolving
Credit Borrowing may be requested on or after March 25th, 2008;
(or, if the Forbearance Period is extended to April 10, 2008 in accordance
with Section 1.4(b) above, April 4, 2008); and (d) the
conditions set forth in Section 4.02 of the First Lien Credit Agreement
shall be met (provided that the Existing Events of Default shall not, in and of
themselves, constitute a failure to satisfy Section 4.02(b)).


 


Section 2.2                                      Pricing.  (a)  During the Forbearance Period, and
until such time as the First Lien Administrative Agent and the First Lien
Lenders shall have received a Compliance Certificate in accordance with Section 6.02(b) of
the First Lien Credit Agreement, each of the Applicable Rate and the Applicable
Fee Rate shall be Pricing Level 4; and (b) during the Forbearance Period,
all outstanding Obligations under the First Lien Credit Agreement shall bear
interest at the Default Rate.


 


Section 2.3                                      Consultant
Matters.  Further to their
obligations under Sections 6.10 and 10.04 of the First 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
First 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 


 


4

















 


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 First Lien Administrative
Agent and the First 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 First Lien Administrative Agent and the First 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 First 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
First Lien Administrative Agent shall have received duly executed counterparts
of this Agreement from each of the Borrowers, the Guarantors and the Required
Lenders;


 


(b)                                 the
Borrowers shall have paid all professional fees and expenses of the First Lien
Administrative Agent and the First Lien Lenders in connection with this
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 First Lien Administrative Agent and the Arranger)
pursuant to wire transfer instructions to be provided by the First Lien
Administrative Agent;


 


(c)                                  the
Second Lien Administrative Agent and the Second Lien Lenders shall have entered
into a forbearance agreement with the Borrowers on terms satisfactory to the
First Lien Administrative Agent which terms and conditions shall include an
acknowledgement, for the express benefit of the First Lien Administrative Agent
and the First Lien Lenders, that the effectiveness of either forbearance
agreement shall not constitute, or be deemed to constitute, the commencement of
a Standstill Period (as defined in the Intercreditor Agreement);


 


(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 


 


5

















 


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 sum of (i) each
consenting First Lien Lender’s Revolving Credit Commitment plus (ii) the
aggregate outstanding principal amount of each consenting First Lien Lender’s
Term Loans to the Borrowers (in each case, (A) including Bank of America,
N.A., in its capacity as a First Lien Lender, and (B) as of the effective
date of this Agreement).


 


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


 


(g)                                 In
furtherance of the Borrowers’ obligations under Section 10.04(a) of
the First 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 First Lien Administrative Agent) as payment for future
services to be provided by the Consultant to the First Lien Administrative
Agent in connection with the Loans, this Agreement, the First 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 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 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
First Lien Credit Agreement, nor will any occur 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 First 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 


 


6

















 


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 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 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 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 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 First 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 First Lien
Credit Agreement.


 


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;


 


7














 


(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 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 First 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 First 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 First 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 First 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 First
Lien Administrative Agent and the First Lien Lenders that is inconsistent with
the express terms of the First Lien Credit 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 Agreement and the First Lien Credit Agreement, and (c) except
with respect to the limited forbearance granted herein 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 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 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,


 


8

















 


(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 Agreement, 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 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 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


 


9

















 


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 First
  Lien Administrative Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BANK OF
  AMERICA, N.A., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  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 1, 2008:


 


	
  First Lien Term Facility

  	
   

  	
  $

  	
  92,500,000.00

  	
   

  	
   

  
	
  First Lien Revolving Facility

  	
   

  	
  $

  	
  0.00

  	
   

  	
   

  
	
  Swing Line Facility

  	
   

  	
  $

  	
  0.00

  	
   

  	
   

  
	
  Letter of Credit Facility

  	
   

  	
  $

  	
  250,000.00
  

  	
   

  	
  (outstanding and undrawn)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  92,750,000.00

  	
   

  	
   

  



 


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 First Lien
Administrative Agent and the First Lien Lenders the financial statements and
other reports and information required under Section 6.01(a) of the
First Lien Credit Agreement (Event of Default under Section 8.01(b) of
the First Lien Credit Agreement)


 


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


 


ANTICIPATED EVENTS OF DEFAULT


 


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


 


2.                                       Failure of
the Borrowers to deliver by February 14, 2008 to the First Lien
Administrative Agent and the First Lien Lenders the Compliance Certificate
required under Sections 6.02(b) of the First Lien Credit Agreement (Events
of Default under Section 8.01(b) of the First 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 First Lien Credit Agreement (Events of Default under Section 8.01(b) of
the First Lien Credit Agreement) for the fiscal year ended September 30,
2007 and for the fiscal quarter ended December 31, 2007