Exhibit 10.5


 


Execution
Copy


 


CONSENT UNDER SECOND LIEN
FORBEARANCE AGREEMENT


 


THIS CONSENT UNDER SECOND LIEN FORBEARANCE AGREEMENT
(this “Consent”) is made as of March 31, 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”), on behalf of itself and the other lenders party to
the Credit Agreement defined below (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 Consent but
not defined in this Consent, 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, which as a
result of such Defaults and Events of Default, gave rise to the Second Lien
Lenders and the Second Lien Administrative Agent having 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, the Second Lien Administrative
Agent and the Second Lien Lenders entered into a Forbearance Agreement on February 13,
2008 (as may be amended, restated supplemented or otherwise modified, the “Forbearance
Agreement”) pursuant to which the Second Lien Lenders and the Second 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 Second
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 First Lien 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 First Lien
Credit Facility in advance of their delivery of the Required Reporting Package;


 


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


 

















 


ARTICLE I


 


CONSENT


 


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


 


Section 1.2                         Consent.  The Second Lien Administrative Agent and the
Second Lien Lenders hereby consent and agree that (i) to the amendment of
the first lien forbearance agreement to permit the Borrowers’ to borrow under
the first lien revolving credit facility and (ii) acknowledge and agree
that all provisions of the Forbearance Agreement remain in full force and
effect.


 


ARTICLE II


 


CONDITIONS TO
EFFECTIVENESS


 


Section 2.1.                   Conditions
Precedent.  This
Amendment shall become effective as of the date first written above upon
receipt by the Second Lien Administrative Agent of 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.


 


ARTICLE III


 


MISCELLANEOUS


 


Section 3.1.                   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 Consent; (b) the officers of
each Loan Party executing this Consent 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 immediately after the
execution and delivery of this Consent 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
Consent 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 


 


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


 


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


 


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


 


(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 Consent;


 


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(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 Consent 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 Consent 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 Consent, 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 Consent and (ii) nothing in the
Second Lien Credit Agreement, this Consent 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 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 Consent other than those that are
set forth in this Consent.  This Consent
has been entered into by each Borrower and each Guarantor freely, voluntarily,
with full knowledge, and without duress, and, in executing this Consent,
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 Consent has been actual
and adequate.


 


Section 3.7.                   No Course of
Dealing.  Each Loan Party acknowledges
and agrees that, (a) this Consent 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, the Forbearance 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 Consent and the Second Lien Credit Agreement, and (c) except
with respect to the limited forbearance granted in the Forbearance Agreement
specifically relating to the Existing Events of Default and as set forth in the
Intercreditor Agreement, neither the Second 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 3.8.                   No Waiver.  Each Loan Party acknowledges and agrees that (a) except
as expressly provided herein, this Consent 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 


 


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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 Consent, 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 3.9.                   Survival.  All representations, warranties, covenants,
agreements, releases and waivers made by or on behalf of any Loan Party under
this Consent 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 CONSENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.


 


Section 3.12.             Entire Agreement.  This Consent (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 Consent 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 Consent.


 


Section 3.14.             Severability Of Provisions;
Captions; Attachments. 
Wherever possible each provision of this Consent shall be interpreted in
such manner as to be effective and valid under applicable law.  Any provision of this Consent 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 Consent.  Each schedule or exhibit attached to this
Consent 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, 


 


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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 CONSENT 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 Consent as of the date referenced in the first
paragraph of this Consent.


 


 


	
   

  	
  PROSPECT
  MEDICAL HOLDINGS, INC. 

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:
  

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  PROSPECT
  MEDICAL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:
  

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


	
   

  	
  BANK
  OF AMERICA, N.A, in its capacity as 

  Second
  Lien Administrative Agent and on 

  behalf
  of the Required Lenders under the

  Second
  Lien Credit Agreement 

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title: