AMENDMENT NUMBER ONE TO REVOLVING CREDIT AGREEMENT
This AMENDMENT NUMBER ONE TO REVOLVING CREDIT AGREEMENT (this
"AMENDMENT"), dated as of July 14, 1997, is entered into by and between PROSPECT
MEDICAL HOLDINGS, INC., a Delaware corporation ("BORROWER"), and IMPERIAL BANK,
a California banking corporation ("BANK"), with reference to the following
facts:
A. Borrower and Bank have previously entered into that certain
Revolving Credit Agreement, dated as of July 3, 1997 (the "AGREEMENT"); and
B. Borrower and Bank desire to amend the Agreement in accordance
with the terms of this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. All initially capitalized terms used but not
defined herein shall have the meanings assigned to such terms in the Agreement.
In addition, Section 1.1 of the Agreement is hereby amended by amending the
definitions of "CREDIT SUCCESSION AGREEMENT," "LOAN DOCUMENTS," "OPTION
AGREEMENT," "PHYSICIAN GROUP," and "REAL ESTATE LEASES," in their entirety as
follows:
"`CREDIT SUCCESSION AGREEMENT' means and includes (i) that
certain Amended and Restated Credit Succession Agreement, dated as of
July 14, 1997, among Borrower, Bank, each Guarantor, each Physician
Group and each Physician Group Shareholder, and (ii) each other Credit
Succession Agreement now or hereafter entered into by and among the
foregoing parties.
"`LOAN DOCUMENT(S)' means each of the following documents,
instruments, and agreements individually or collectively, as the
context requires:
(i) the Note;
(ii) the Security Agreement (Borrower);
(iii) the Guaranties;
(iv) the Security Agreements (Guarantor);
(v) the Stock Pledge Agreements (Borrower);
(vi) the Collateral Assignments of Transaction Documents;
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(vii) the Credit Succession Agreements;
(viii) the Letter of Credit Applications;
(ix) the Warrant; and
(x) such other documents, instruments, and agreements
(including financing statements and fixture filings) as Bank may
reasonably request in connection with the transactions
contemplated hereunder or to perfect or protect the liens and
security interests granted to Bank in connection herewith.
"`OPTION AGREEMENT' means each certain Assignable Option
Agreement heretofore or hereafter entered into by and among a
Physician Group, its Physician Group Shareholders and its Manager.
"`PHYSICIAN GROUP' means a professional medical corporation.
"`REAL ESTATE LEASES' means all leases, licenses, and any
and all other agreements regarding a right of entry to and/or a
possessory interest in real property now or hereinafter entered into
by Borrower, any Subsidiary or any Physician Group as a tenant or
licensee, or which have been, or are in the future, being purchased,
assigned or sublet to Borrower, any Subsidiary or any Physician Group
as a tenant or licensee."
2. AMENDMENT TO ARTICLE IV. Sections 4.5, 4.6, 4.7, 4.10, 4.13 and
4.18 of the Agreement are hereby amended in their entirety as follows:
"4.5 LIENS. Borrower, each Subsidiary and each Physician
Group has good and marketable title to, or valid leasehold interests
in, all of its Assets, free and clear of all Liens or rights of
others, except for Permitted Liens.
"4.6 DEBT. Borrower, each Subsidiary and each Physician
Group has no Debt other than (i) Permitted Debt and (ii) until August
14, 1997, a $125,000 line of credit from ▇▇▇▇▇ Fargo Bank to Santa/▇▇▇
▇▇▇▇▇▇ Physicians Group, Inc., under which no amounts are outstanding
or owing.
"4.7 LITIGATION. Except as set forth in SCHEDULE 4.7,
there are no suits, proceedings, claims or disputes pending or, to the
knowledge of Borrower after due inquiry, threatened, against or
affecting Borrower, any Subsidiary or any Physician Group, or any of
Borrower's Assets, any of any Subsidiary's Assets or any of any
Physician Group's Assets, which are not fully covered by applicable
insurance and as to which no reservation of rights has been taken by
the insurer thereunder.
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"4.10 TAXES. All tax returns required to be filed by
Borrower, the Subsidiaries and the Physician Groups in any
jurisdiction have in fact been filed, and all taxes, assessments, fees
and other governmental charges upon Borrower, the Subsidiaries and the
Physician Groups or upon any of their Assets, income or franchises,
which are due and payable have been paid. The provisions for taxes on
the books of Borrower and each of the Subsidiaries and Physician
Groups are adequate for all open years, and for Borrower's and each of
the Subsidiaries' and Physician Groups' current fiscal period.
"4.13 OTHER OBLIGATIONS. Except as disclosed in SCHEDULE
4.13, Borrower and each of the Subsidiaries and Physician Groups is
not in default on any Debt, and Borrower and each of the Subsidiaries
and Physician Groups is not in default on any other lease, commitment,
contract, instrument or obligation which is material to the operation
of its business.
"4.18 REAL ESTATE LEASES. All of the Real Estate Leases
are listed on SCHEDULE 4.18. All of the Real Estate Leases are
currently in full force and effect, and true and correct copies of all
Real Estate Leases, together with all amendments, exhibits and
schedules thereto, have been delivered to Bank. Except as disclosed
in SCHEDULE 4.13, neither the landlord nor the tenant therein, as the
case may be, is in default on any of its obligations thereunder, and
no event has occurred which, with the passage of time or the giving of
notice, or both, would constitute such a default."
3. AMENDMENT TO SECTION 5.11. Section 5.11 of the Agreement is
hereby amended in its entirety as follows:
"(a) BANK ACCOUNTS. Maintain, and cause each Subsidiary
and each Physician Group to maintain, its cash on hand and cash
equivalent investments in deposit accounts at Bank, which deposits
accounts (other than the deposit accounts of the Physician Groups)
shall be subject to the security interests granted to Bank under the
Security Agreement and the Security Agreements (Guarantor), and all
funds in the deposit accounts of the Physician Groups shall be swept
daily into the deposit account of its Manager established at Bank;
PROVIDED, HOWEVER, notwithstanding the foregoing, the Five Hundred
Seventy-Nine Thousand Four Hundred Fifty-Nine Dollars ($579,454) on
deposit in the "RESERVE ACCOUNT" (as such term is defined in Section
3.5 of that certain Agreement for the Purchase and Sale of Stock of
Santa ▇▇▇/Tustin Physicians Group, Inc., by and among Prosect Medical
Group, Inc., Santa ▇▇▇/Tustin Physicians Group, Inc., and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, D.O., as in effect on the date hereof) may be maintained in an
account at ▇▇▇▇▇▇▇ ▇▇▇▇▇ or such other depository other than Bank.
The Reserve Account may consist of cash other or liquid securities,
certificates of deposit or other marketable securities. Such account
may also have the following
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added to it, as each item relates to the period prior to July 14,
1997: hospital control pools, stop loss payments, maternity
guaranties, mammogram pools, retroactive capitation payments and
accounts receivable."
4. AMENDMENT TO SECTION 6.2. Section 6.2 of the Agreement is hereby
amended in its entirety as follows:
"6.2 DEBT. Create, incur, assume or suffer to exist, or
permit any Subsidiary or any Physician Group to create, incur, assume
or suffer to exist, any Debt except (i) Permitted Debt, and (ii) a
$125,000 line of credit from ▇▇▇▇▇ Fargo Bank to Santa/▇▇▇ ▇▇▇▇▇▇
Physicians Group, Inc., SO LONG AS (x) such line of credit remains
unsecured, (y) no amounts are outstanding or owing at any time, and
(y) such line of credit is terminated not later than 5:00 p.m., Los
Angeles time, August 14, 1997."
5. AMENDMENT TO SECTION 6.8(b). Section 6.8(b) of the Agreement is
hereby amended in its entirety as follows:
"(b) Notwithstanding Section 6.8(a), Borrower shall be
permitted to acquire or form a new Subsidiary in connection with the
funding by it or such Subsidiary of the acquisition of a Physician
Group in accordance with the Transaction Documents with respect to
such Physician Group (a "PERMITTED ACQUISITION") so long as the
following conditions have been fulfilled to the satisfaction of Bank
in its sole and absolute discretion:
(i) Such Subsidiary shall be a corporation,
wholly owned by Borrower;
(ii) Bank shall have received not later than
thirty (30) days prior to the date of the proposed Permitted
Acquisition, (x) a written detailed description of the proposed
Permitted Acquisition, in form and substance satisfactory to Bank,
including historical and projected financial information, accounts
receivable information and reconciliations, and such other supporting
information with respect to the applicable Physician Group and
proposed Permitted Acquisition as Bank shall require, including
historical financial statements and a listing of adjustments to
physician compensation and other ongoing expenses reflected in the
projected EBITDA for the transaction; and (y) draft copies of all
Transaction Documents with respect to the proposed Permitted
Acquisition, in form and substance satisfactory to Bank;
(iii) Bank shall have given its prior written
consent to such Permitted Acquisition if either (x) the total
consideration to be paid to the seller of the applicable Physician
Group is Three Million Dollars ($3,000,000) or more, or (y) the total
consideration to be paid to the seller
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of the applicable Physician Group is One Million Dollars ($1,000,000)
or more but less than Three Million Dollars ($3,000,000) AND both (1)
the total consideration to be paid to the seller of the applicable
Physician Group is in excess of five times such Physician Group's
projected EBITDA and (2) the cash consideration to be paid to the
seller of the applicable Physician Group is in excess of three times
such Physician Group's projected EBITDA;
(iv) Bank shall have received, not later than one
(1) day prior to the date of the closing of such Permitted
Acquisition, final copies of all Transaction Documents with respect
thereto, marked to show changes from the drafts of same previously
provided to Bank, and Bank shall be satisfied with same;
(v) Bank shall have received all of the following
Loan Documents with respect to such proposed Permitted Acquisition, in
form and substance satisfactory to Bank in its sole and absolute
discretion:
(1) a Guaranty duly executed by the applicable
Subsidiary;
(2) a Security Agreement (Guarantor), duly
executed by the applicable Subsidiary;
(3) a Stock Pledge Agreement with respect to the
capital stock of the applicable Subsidiary, duly executed by Borrower
and acknowledged by such Subsidiary;
(4) a Collateral Assignment of Transaction
Documents (Guarantor), duly executed by the applicable Subsidiary and
acknowledged by each of the other Persons party to such Transaction
Documents;
(5) a Security Agreement (Physician Group) and
related financing statement(s) (Form UCC-1) as Bank shall require and
financing statement assignment (Form UCC-2 or UCC-3, as applicable),
duly executed by the applicable Physician Group and Subsidiary;
(6) a Credit Succession Agreement or a joinder
agreement to an existing Credit Succession Agreement, duly executed by
such Subsidiary, Physician Group and the Physician Group Shareholders
of such Physician Group;
(7) such UCC-1 financing statements and/or
fixture filings as Bank shall reasonably require in connection with
the
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foregoing Loan Documents, duly executed by Borrower or such
Subsidiary, as applicable;
(vi) Bank shall have received the original duly
executed Inter-Company Note (Guarantor), endorsed by allonge by
Borrower to Bank, and the original duly executed Inter-Company Note
(Physician Group Shareholder), endorsed by allonge by the applicable
Guarantor to Bank, evidencing the downstreaming of the funds from
Borrower to the applicable Guarantor to the applicable Physician Group
Shareholder, together with the original duly executed Inter-Company
Security Agreement and UCC-1 Financing Statements as Bank shall
require with respect thereto, duly assigned to Bank, all in form and
substance satisfactory to Bank in its sole and absolute discretion;
(vii) Bank shall have received the certificates
evidencing all of the capital stock of the applicable Physician Group
together with undated stock powers with respect thereto, duly executed
in blank by the applicable Physician Group Shareholder;
(viii) Bank shall have received the certificates
evidencing all of the capital stock of the applicable Subsidiary,
together with undated stock powers with respect thereto, duly executed
in blank by Borrower;
(ix) Bank shall have received a favorable duly
executed opinion of Borrower's and Guarantors' counsel, dated as of
the date of the closing of the proposed Permitted Acquisition, with
respect to the proposed Permitted Acquisition, satisfactory to Bank in
its sole and absolute discretion;
(x) Bank shall have received replacement
Schedules to this Agreement and the Loan Documents, as appropriate, in
form and substance satisfactory to Bank in its sole and absolute
discretion;
(xi) Bank shall have received a Certificate of the
Secretary of the applicable Guarantor, dated as of the date of the
closing of the proposed Permitted Acquisition, certifying (i) the
incumbency and signatures of the Responsible Officers of such
Guarantor who are executing the Loan Documents on behalf of such
Guarantor, (ii) the bylaws of such Guarantor and all amendments
thereto as being true and correct and in full force and effect, and
(iii) the resolutions of the Board of Directors of such Guarantor as
being true and correct and in full force and effect, authorizing the
execution and delivery of the Loan Documents, and authorizing the
transactions contemplated thereunder, and authorizing the Responsible
Officers of such Guarantor to execute the same on behalf of such
Guarantor;
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(xii) Bank shall have received a certificate of
status and good standing for the applicable Guarantor and Physician
Group, dated as of a recent date prior to the date of the closing of
the proposed Permitted Acquisition, showing that such Guarantor and
Physician Group is in good standing under the laws of the state of its
organization;
(xiii) Bank shall have received the Articles or
Certificate of Incorporation and all amendments thereto of the
applicable Guarantor and Physician Group, certified by the Secretary
of State of the state of its organization;
(xiv) receipt by Bank of certificates of foreign
qualification and good standing with respect to the applicable
Guarantor and Physician Group, dated as of a recent date prior to the
date of the closing of the proposed Permitted Acquisition, showing
that such Guarantor and Physician Group is qualified to do business
and is in good standing under the laws of each state where the failure
to be so qualified would have a Material Adverse Effect;
(xv) receipt by Bank of a certificate signed by
the President and Chief Financial Officer of the applicable Guarantor,
dated as of the date of the closing of the proposed Permitted
Acquisition, certifying to Bank that (i) both immediately before and
immediately after giving effect to the transactions contemplated by
the Loan Documents, such Guarantor is and will be Solvent, (ii) to the
best of their knowledge after due and diligent inquiry, the
representations and warranties of such Guarantor contained in the Loan
Documents are true and correct, (iii) to the best of their knowledge
after due and diligent inquiry, both immediately before and
immediately after giving effect to the transactions contemplated by
the Loan Documents, no Event of Default or Unmatured Event of Default
is continuing or shall occur, and (iv) the business of such Guarantor
and the practice of the Physician Group which is the subject of such
Permitted Acquisition are substantially the same as all other
Guarantors and Physician Groups;
(xvi) Bank shall have received payment in full of
all Bank Expenses pursuant to Section 9.3(a)(i) incurred in connection
with the proposed Permitted Acquisition;
(xvii) Bank shall have received copies of insurance
binders or insurance certificates evidencing Borrower's having caused
to be obtained insurance in accordance with Section 5.5, including the
lender's loss payee endorsements required by such Section;
(xviii) Bank shall have received Uniform
Commercial Code and other public record searches with respect to the
applicable
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Guarantor and Physician Group, in each case satisfactory to Bank in
its sole and absolute discretion; and
(xix) Bank shall have received such other
agreements, instruments and documents as Bank may reasonably require
in connection with such Permitted Acquisition, in form and substance
satisfactory to Bank in its sole and absolute discretion."
6. SCHEDULES. SCHEDULE 4.13 attached to this Amendment is hereby
added to the Agreement. In addition, SCHEDULES 1.1P, 4.7, 4.9, 4.12, 4.18, and
4.20 to the Agreement are hereby deleted in their entirety and replaced,
respectively, with SCHEDULES 1.1P, 4.7, 4.9, 4.12, 4.18, and 4.20 attached to
this Amendment.
7. REPRESENTATIONS AND WARRANTIES. In order to induce Bank to enter
into this Amendment, Borrower represents and warrants to Banks that:
(a) as of the date hereof, no Event of Default, Unmatured Event
of Default or Material Adverse Effect is continuing;
(b) all of the representations and warranties set forth in the
Agreement and the Loan Documents are true, complete and accurate in all respects
as of the date hereof (except for representations and warranties which are
expressly stated to be true and correct as of the Closing Date); and
(c) this Amendment has been duly executed and delivered by
Borrower, and after giving effect to this Amendment, the Agreement continues to
constitute the legal, valid and binding agreements and obligations of Borrower,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, and similar laws and equitable principles
affecting the enforcement of creditors' rights generally.
8. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The
effectiveness of this Amendment is subject to and contingent upon the
fulfillment of each and every one of the following conditions:
(a) Bank shall have received this Amendment, duly executed by
Borrower and Bank, and the Consent of Guarantor, duly executed by Prospect
Medical Systems, Inc.;
(b) Bank shall have received all outstanding and unpaid Bank
Expenses, including but not limited to the legal fees of Buchalter, Nemer,
Fields & Younger relating to the negotiation, preparation and documentation of
the Agreement, the Loan Documents and this Amendment;
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(c) No Event of Default, Unmatured Event of Default or Material
Adverse Effect shall be continuing; and
(d) All of the representations and warranties set forth herein
and in the Agreement shall be true, complete and accurate in all respects as of
the date hereof (except for representations and warranties which are expressly
stated to be true and correct as of Closing Date).
9. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Amendment may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Amendment. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
10. REAFFIRMATION OF THE AGREEMENT. Except as expressly modified by
this Amendment, the Agreement and the Loan Documents shall remain in full force
and effect.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first hereinabove written.
PROSPECT MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
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Title: CEO
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IMPERIAL BANK,
a California banking corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title: SVP
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CONSENT OF GUARANTOR
The undersigned, as "Guarantor" under that certain Continuing
Guaranty, dated as of July 3, 1997 (the "GUARANTY"), executed in favor of
IMPERIAL BANK, a California banking corporation ("BANK"), with respect to the
obligations of PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation
("BORROWER"), owing to Bank, hereby acknowledges notice of the foregoing
Amendment Number One to Revolving Credit Agreement, dated as of July 14, 1997,
between Borrower and Bank, consents to the terms contained therein, and agrees
that the Guaranty and all security therefor shall remain in full force and
effect.
Although Bank has informed us of the matters set forth above and we
have acknowledged same, we understand and agree that Bank has no duty under the
Agreement, the Guaranty or any other agreement between us to so notify us or to
seek an acknowledgement, and nothing herein is intended to or shall create such
a duty as to any advances or transactions hereafter.
PROSPECT MEDICAL SYSTEMS, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
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Title: CEO
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