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 28 th 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
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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 (6 th ) day following each such
Revolving Credit Borrowing; (c) no Revolving Credit Borrowing
may be requested on or after March 25 th , 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
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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 ac
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