Exhibit 10.7


 


Bank of America, N.A.


WA1-501-17-32


800 Fifth Avenue, Floor 17


Seattle, WA  98104


 


January 30, 2009


 


Prospect Medical Group, Inc.


1920 East 17th Street, Suite 200


Santa Ana, CA 92705


 


Re:                               Third Amendment to Letter Agreement
Regarding Divestiture Plan and Consent (this “Agreement”)


 


Ladies and Gentlemen:


 


Reference is hereby made to that certain side letter
agreement dated as of May 15, 2008 (as amended, restated, supplemented or
otherwise modified from time to time, the “Divestiture Letter Agreement”)
among Prospect Medical Holdings, Inc. (“Holdings”), 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 thereto (collectively, the “First Lien
Lenders”).  Reference is also hereby
made to 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 and other extensions of credit, all upon the terms and conditions set
forth in the First Lien Credit Agreement. 
Terms not otherwise defined in this Agreement shall have the meaning
assigned thereto in the Divestiture Letter Agreement and the First Lien Credit
Agreement, as applicable.


 


1.                                       Third Amendment
to the Divestiture Letter Agreement:


 


Under the terms of the
Divestiture Letter Agreement, the Borrowers agreed to complete the sale of the
ProMed Entities (as defined in the Divestiture Plan) no later than January 31,
2009 (the “Sale Deadline”).  The
Borrowers have requested that the First Lien Administrative Agent and the First
Lien Lenders amend the Divestiture Letter Agreement to extend the Sale Deadline
to February 27, 2009 (the “Extension Deadline”).  The First Lien Administrative Agent and the
First Lien Lenders are willing to grant the Borrowers’ request subject to the
terms and conditions of this Agreement.


 


In furtherance thereof, the
First Lien Administrative Agent, the First Lien Lenders and the Borrowers agree
that paragraph (c) of the Divestiture Letter Agreement is hereby amended
and restated in its entirety to read as follows:


 


“(c)                            The Borrowers shall complete the sale of (i) the Antelope Valley
Entities (as defined in the Divesture Plan) no later than October 1, 2008
and in 


 

















 


accordance
with the terms set forth in the Amendment and (ii) the ProMed Entities (as
defined in the Divesture Plan) no later than February 27, 2009 on terms and conditions reasonably
satisfactory to the First Lien Administrative Agent and the Required Lenders.”


 


2.                                       Consent by the First Lien Lenders


 


Prospect Hospital Advisory
Services, Inc., a Prospect subsidiary, presently owns a minority interest
in Brotman Medical Center, Inc. (“Brotman”).  In connection with Brotman’s exit from
current bankruptcy proceedings and as part of a plan of reorganization for
Brotman, the Borrowers placed certain amounts with the U.S. Bankruptcy Court
for the Central District of California, Los Angeles Division, in an attempt to
purchase additional equity in Brotman. 
Should the Borrowers prevail, the Borrowers’ resulting ownership
interest could approach 70% or more.


 


Under the terms of the
Credit Agreement, acquiring a majority interest in Brotman would immediately
qualify Brotman as a “Subsidiary” of the Borrowers and would require joinder of
Brotman to the Collateral Agreement and the Subsidiary Guaranty Agreement within
a short period of time following such acquisition.


 


Accordingly, the Borrowers
have requested that, in the event that any Borrower (or any Subsidiary or
Subsidiaries thereof) acquires a majority interest in Brotman prior to the
Extension Deadline, the First Lien Administrative Agent and the First Lien
Lenders exclude Brotman as a “Subsidiary” under the First Lien Credit Agreement
until the expiration of the Extension Deadline.


 


Subject to the terms and
conditions of this Agreement, the First Lien Administrative Agent and the First
Lien Lenders hereby consent and agree that, should any Borrower (or any
Subsidiary or Subsidiaries thereof), acquire a majority ownership interest in
Brotman prior to the expiration of the Extension Deadline, Brotman shall not be
deemed or considered a “Subsidiary” under the terms of the First Lien Credit Agreement for any
purpose until the expiration of the Extension Deadline.


 


This Agreement shall become
effective as of January 30, 2009, upon (a) execution and delivery of
this Agreement by the Borrowers, the Guarantors, the First Lien Administrative
Agent and the Required Lenders under the First Lien Credit Agreement, (b) execution
and delivery by the Borrowers, the Guarantors, the Second Lien Administrative
Agent and the “Required” Lenders under the Second Lien Credit Agreement of an
agreement substantially similar to this Agreement, and (c) payment of all
professional fees and expenses of the First Lien Administrative Agent and the
First Lien Lenders in connection with this Agreement and the transactions
contemplated hereby and thereby (including all fees and expenses of Winston &
Strawn LLP, in its capacity as counsel to the First Lien Administrative Agent), pursuant to wire transfer
instructions to be provided by the First Lien Administrative Agent.


 


Except for the amendment and
consent contained herein, all of the terms and provisions of the Divestiture
Letter Agreement, the First Lien Credit Agreement and the other Loan Documents
shall remain in full force and effect. 
The Borrowers, by their acceptance hereof, hereby acknowledge and agree that the failure
to complete the sale of the ProMed Entities prior to the date specified in the
Divestiture Letter Agreement, as amended hereby, shall result in an Event of
Default in accordance with Section 8.01(b) of the First Lien
Credit Agreement.  In 


 

















 


addition, the Borrowers acknowledge and agree that, should the
Borrowers (or any Subsidiary or Subsidiaries thereof) obtain majority ownership of Brotman and
unless otherwise addressed prior to such date in accordance with the terms of
the First Lien Credit Agreement, upon the expiration of the Extension Deadline,
the Borrowers shall be required to comply with, and Brotman shall be subject
to, the terms of the First Lien Credit Agreement and the other Loan Documents
in all respects.


 


Each of the Guarantors, by their acknowledgment
hereto, agree and consent to this Agreement, to all prior Loan Documents, and
to the documents and agreements referred to herein and therein, and to all future
modifications and amendments thereto, and any termination thereof, and to any
and all other present and future documents and agreements between or among the
Borrowers, the First Lien Administrative Agent. 
The Guarantors agree to be bound by all terms of the Loan Documents
applicable to “Loan Parties”.  Nothing
contained herein shall in any way expand, limit or diminish any of the
obligations of the Guarantors under their respective guaranty, each such
guaranty being hereby ratified and affirmed. 
The signatures of each of the Guarantors shall be fully effective even
if any other Guarantor fails to sign this Agreement.


 


Each of the Borrowers and Guarantors 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 such Person 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 of the Borrowers and
Guarantors 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 Agreement 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.


 


[Signature
Pages Follow]


 

















 


This Agreement shall constitute a Loan Document and may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  Delivery of executed counterparts of this Agreement by telecopy or pdf shall be
effective as an original.


 


Very truly yours,


 


	
   

  	
  BANK OF AMERICA, N.A., in
  its capacity as First Lien Administrative Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tiffany Shin

  
	
   

  	
  Name:

  	
  Tiffany Shin

  
	
   

  	
  Title:

  	
  Assistant Vice President

  



 


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Third Amendment to First
Lien Divestiture Letter Agreement and Consent


 

















 


	
   

  	
  BANK OF AMERICA, N.A., as
  a First Lien Lender, L/C Issuer and Swing Line Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas E. Brown

  
	
   

  	
  Name:

  	
  Thomas E. Brown

  
	
   

  	
  Title:

  	
  Senior Vice President

  



 


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  BAMM FUNDING LLC, as a
  Lender

  
	
   

  	
   

  
	
   

  	
  By: Banc of America Middle
  Market Funding LLC, as Member

  
	
   

  	
  By: Bank of America, N.A.,
  as Managing Member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mohit Ramani

  
	
   

  	
  Name:

  	
  Mohit Ramani

  
	
   

  	
  Title:

  	
  Principal

  



 


Third Amendment to First
Lien Divestiture Letter Agreement and Consent


 

















 


	
   

  	
  Camulos Master Fund LP, as
  a First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael P. Iuliano

  
	
   

  	
  Name:

  	
  Michael P. Iuliano

  
	
   

  	
  Title:

  	
  Authorized Signatory

  



 


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  Field Point I, LTD., as a
  First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard Petrilli

  
	
   

  	
  Name:

  	
  Richard Petrilli

  
	
   

  	
  Title:

  	
  Authorized Signatory

  



 


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  Field Point II, LTD., as a
  First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard Petrilli

  
	
   

  	
  Name:

  	
  Richard Petrilli

  
	
   

  	
  Title:

  	
  Authorized Signatory

  



 


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Lien Divestiture Letter Agreement and Consent


 

















 


	
   

  	
  Field Point III, LTD, as a
  First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard Petrilli

  
	
   

  	
  Name:

  	
  Richard Petrilli

  
	
   

  	
  Title:

  	
  Authorized Signatory

  



 


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Third Amendment to First
Lien Divestiture Letter Agreement and Consent


 
















 


	
   

  	
  Field Point IV, LTD, as a
  First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard Petrilli

  
	
   

  	
  Name:

  	
  Richard Petrilli

  
	
   

  	
  Title:

  	
  Authorized Signatory

  



 


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  Grand Central Asset Trust,
  SIL Series, as a First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Adam Jacobs

  
	
   

  	
  Name:

  	
  Adam Jacobs

  
	
   

  	
  Title:

  	
  Attorney-In-Fact

  



 


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Third Amendment to First
Lien Divestiture Letter Agreement and Consent


 

















 


	
   

  	
  PPM GRAYHAWK CLO, LTD., by
  PPM America, Inc., as Collateral Manager, as a First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David C. Wagner

  
	
   

  	
  Name:

  	
  David C. Wagner

  
	
   

  	
  Title:

  	
  Managing Director

  



 


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  PPM MONARCH BAY FUNDING
  LLC, as a First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tara E. Kenny

  
	
   

  	
  Name:

  	
  Tara E. Kenny

  
	
   

  	
  Title:

  	
  Assistant Vice President

  



 


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  PPM Riviera CBNA Loan
  Funding LLC, as a First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Malia Baynes

  
	
   

  	
  Name:

  	
  Malia Baynes

  
	
   

  	
  Title:

  	
  Trust Officer

  



 


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  SERVES 2006-1, Ltd, by PPM
  America, Inc., as Collateral Manager, as a First Lien Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David C. Wagner

  
	
   

  	
  Name:

  	
  David C. Wagner

  
	
   

  	
  Title:

  	
  Managing Director

  



 


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  Accepted and Agreed:

  	
   

  
	
   

  	
   

  
	
  PROSPECT MEDICAL HOLDINGS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Samuel S. Lee

  	
   

  
	
  Name: Samuel S. Lee

  	
   

  
	
  Title: Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Samuel S. Lee

  	
   

  
	
  Name: Samuel S. Lee

  	
   

  
	
  Title: Senior Vice President

  	
   

  



 


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Third Amendment to First
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  ALTA HOSPITALS SYSTEM,
  LLC, formerly known as PROSPECT HOSPITALS SYSTEM, LLC

  	
   

  	
  NUESTRA FAMILIA MEDICAL
  GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Samuel S. Lee

  	
   

  	
  By:

  	
  /s/ Samuel S. Lee

  
	
  Name: Samuel S. Lee

  	
   

  	
  Name: Samuel S. Lee

  
	
  Title: Chief Executive Officer

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PROMED HEALTH CARE
  ADMINISTRATORS

  	
   

  	
  PROSPECT ADVANTAGE
  NETWORK, INC.

  
	
  PROMED HEALTH SERVICES
  COMPANY

  	
   

  	
  PINNACLE HEALTH RESOURCES

  
	
   

  	
   

  	
  PROSPECT HOSPITAL ADVISORY
  SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Samuel S. Lee

  
	
  By:

  	
  /s/ Samuel S. Lee

  	
   

  	
  Name: Samuel S. Lee

  
	
  Name: Samuel S. Lee

  	
   

  	
  Title: President and Chief Executive Officer

  
	
  Title: Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  POMONA VALLEY MEDICAL
  GROUP, INC.

  	
   

  	
  ARTHUR E. LIPPER, solely
  in his capacity as

  
	
  UPLAND MEDICAL GROUP, A
  PROFESSIONAL MEDICAL CORPORATION

  	
   

  	
  Pledgor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Samuel S. Lee

  	
   

  	
   

  
	
  Name: Samuel S. Lee

  	
   

  	
  /s/ Arthur E. Lipper

  
	
  Title: Vice President

  	
   

  	
   

  



 


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  ALTA LOS ANGELES
  HOSPITALS, INC.

  	
   

  	
  PROSPECT MEDICAL SYSTEMS,
  INC.

  
	
  ALTA HOLLYWOOD HOSPITALS,
  INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Samuel S. Lee

  
	
  By:

  	
  /s/ David Topper

  	
   

  	
  Name: Samuel S. Lee

  
	
  Name: David Topper

  	
   

  	
  Title: Chairman of the Board

  
	
  Title: Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SANTA ANA/TUSTIN
  PHYSICIANS GROUP, INC.

  	
   

  	
   

  
	
  PROSPECT HEALTH SOURCE
  MEDICAL GROUP, INC.

  	
   

  	
   

  
	
  PROSPECT PROFESSIONAL CARE
  MEDICAL GROUP, INC.

  	
   

  	
   

  
	
  PROSPECT NWOC MEDICAL
  GROUP, INC.

  	
   

  	
   

  
	
  APAC MEDICAL GROUPS, INC.

  	
   

  	
   

  
	
  STARCARE MEDICAL GROUP,
  INC.

  	
   

  	
   

  
	
  GENESIS HEALTHCARE OF
  SOUTHERN CALIFORNIA, INC., A MEDICAL GROUP

  	
   

  	
   

  
	
  PROSPECT PHYSICIANS
  ASSOCIATES, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Samuel S. Lee

  	
   

  	
   

  
	
  Name: Samuel S. Lee

  	
   

  	
   

  
	
  Title: Senior Vice President

  	
   

  	
   

  



 


Third Amendment to First
Lien Divestiture Letter Agreement and Consent