SECOND AMENDMENT TO AMENDED AND RESTATED SECOND LIEN FORBEARANCE AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.7

SECOND AMENDMENT TO
AMENDED AND RESTATED SECOND LIEN FORBEARANCE AGREEMENT

        THIS SECOND AMENDMENT TO AMENDED AND RESTATED SECOND LIEN FORBEARANCE AGREEMENT (this " Amendment ") is made and entered into as of May 14, 2008, 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 (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 Loans (such term, together with each other capitalized term used in this Amendment but not defined in this Amendment, 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, as of the date hereof, certain Defaults and Events of Default exist under the Second Lien Credit Agreement and, 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, to declare the commitment of each Second Lien Lender to make Loans to be terminated and to exercise any and all other 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 an Amended and Restated Forbearance Agreement on April 10, 2008 (as amended by a First Amendment to Amended and Restated Second Lien Forbearance Agreement, dated as of April 30, 2008, as further amended hereby, and as may be further 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 Lien Administrative Agent that they need an additional day to provide final covenant calculations to the Second Lien Administrative Agent and the Second Lien Lenders, and, accordingly, the Borrowers have requested an extension to the Forbearance Period to finalize such calculations;

        WHEREAS, the Second Lien Lenders and the Second Lien Administrative Agent are willing to grant such request on the terms and conditions set forth in this Amendment;

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

ARTICLE I

AMENDMENT TO THE FORBEARANCE AGREEMENT AND COVENANTS

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

        Section 1.2     Amendment.     The first paragraph of Section 1.4 of the Forbearance Agreement is hereby amended by replacing the date "May 14, 2008" with "May 15, 2008" in such section.

ARTICLE II

CONDITIONS TO EFFECTIVENESS

        Section 2.1     Conditions Precedent.     This Amendment shall become effective as of the date first written above upon the satisfaction of each of the following conditions:

        (a)   the Second Lien Administrative Agent shall have received 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; and

        (b)   the First Lien Administrative Agent and the First Lien Lenders shall have consented in writing to this Amendment.

        (c)   the First Lien Administrative Agent and the First Lien Lenders shall have entered into an amendment, which shall be substantially similar to this Amendment, with the Borrowers on terms satisfactory to the Second Lien Administrative Agent and the Second Lien 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 Amendment; (b) the officers of each Loan Party executing this Amendment 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 Amendment 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 Amendment 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 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 Amendment 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 t