Exhibit 10.7

SECOND AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT

THIS SECOND AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT (this “Agreement”)
is effective as of the 1st of June, 2007, by and among Prospect Medical Systems,
Inc., a Delaware corporation (“PMS”), Prospect Medical Group, Inc., a California
professional corporation (“PMG”), and Jacob Y. Terner, M.D. (“Shareholder”),
with reference to the following facts:

RECITALS

A.            PMG owns and operates a professional corporation that is organized
and operated as a medical group and an independent practice association (the
“Practice”).

B.            All of the issued and outstanding shares of PMG are owned by
Shareholder.

C.            Pursuant to the Assignable Option Agreement dated as of January
13, 2000,  among the parties hereto (as amended or otherwise modified prior to
the date hereof, the Prior Assignable Option Agreement”), PMG and Shareholder
granted to PMS and PMS acquired from PMG and Shareholder an assignable option to
purchase all of the assets of PMG and the right to designate the purchaser
(“Successor Physician”) of all or part of the issued and outstanding stock in
PMG.  When used in this Agreement, the term “Assets” shall mean all of PMG’s and
Shareholder’s right, title, interest and estate in and to all the assets of
every kind and description used in or pertaining to the Practice, including but
not limited to the assets set forth on Exhibit A.  When used in this Agreement,
the term “Stock” shall mean all of Shareholder’s right, title, interest and
estate in and to all of the issued and outstanding stock in PMG, including any
rights to any additional stock, preemptive rights, warrants, and the like, as
set forth on Exhibit B.

D.            PMS, PMG and Shareholder desire to enter into this Agreement to
incorporate within the terms, conditions and provisions of one agreement all of
the terms, conditions and provisions governing assignable options to purchase
all of the Assets and the right to designate the Successor Physician of all or
part of the issued and outstanding Stock and to amend and restate the terms,
conditions and provisions set forth in the Prior Assignable Option Agreement.

NOW, THEREFORE, in consideration of the foregoing promises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, PMS, PMG and Shareholder agree to amend and restate
the Prior Assignable Option Agreement in its entirety to read as follows:

1.             GRANT OF OPTION.

1.1           PMG HEREBY GRANTS TO PMS AN ASSIGNABLE OPTION TO PURCHASE ALL OR
ANY PART OF THE ASSETS (THE “ASSETS OPTION”), ON THE TERMS AND SUBJECT TO THE
CONDITIONS SET FORTH IN THIS AGREEMENT.

1.2           PMG AND SHAREHOLDER HEREBY GRANT TO PMS, THE ASSIGNABLE RIGHT TO
DESIGNATE A SUCCESSOR PHYSICIAN OR SUCCESSOR PHYSICIANS, WHICH PERSON OR PERSONS
MUST BE DULY LICENSED PHYSICIANS IN THE STATE OF CALIFORNIA OR OTHERWISE
PERMITTED BY LAW TO BE A SHAREHOLDER IN A

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PROFESSIONAL CORPORATION, TO PURCHASE ALL OR PART OF THE STOCK (THE “STOCK
OPTION”), ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH HEREIN.  IN ITS
SOLE DISCRETION, PMS MAY DESIGNATE THE AMOUNT OF STOCK WHICH IS TO BE
PURCHASED.  THE ASSETS OPTION AND THE STOCK OPTION ARE COLLECTIVELY REFERRED TO
HEREIN AS THE “OPTION.”

1.3           PMG AND SHAREHOLDER REPRESENT AND WARRANT THAT AS OF THE DAY AND
YEAR FIRST ABOVE WRITTEN AND DURING THE TERM OF THIS AGREEMENT, EXHIBIT A AND
EXHIBIT B ARE TRUE AND COMPLETE LISTINGS OF THE ASSETS AND STOCK, RESPECTIVELY,
AS REVISED FROM TIME TO TIME PURSUANT TO THIS AGREEMENT.

1.4           EXCEPT AS SET FORTH IN THE CREDIT SUCCESSION AGREEMENT, EFFECTIVE
JUNE 1, 2007, BY AND AMONG PMS, SIERRA MEDICAL MANAGEMENT, INC., A DELAWARE
CORPORATION (“SMM”), PROMED HEALTH CARE ADMINISTRATORS, A CALIFORNIA CORPORATION
(“PHCA”; AND TOGETHER WITH PMS AND SMM, EACH A “MANAGEMENT COMPANY” AND
COLLECTIVELY, THE “MANAGEMENT COMPANIES”), PROSPECT HOSPITAL ADVISORY SERVICES,
INC., A DELAWARE CORPORATION (“PHA”), PROSPECT ADVANTAGE NETWORK, INC., A
CALIFORNIA CORPORATION (“PAN”) AND PROMED HEALTH SERVICES COMPANY, A CALIFORNIA
CORPORATION (“PHS”), AND TOGETHER WITH PHA AND PAN, EACH A “NON-MANAGEMENT
SUBSIDIARY” AND COLLECTIVELY, THE “NON-MANAGEMENT SUBSIDIARIES”, PMG, SIERRA
PRIMARY CARE MEDICAL GROUP, A MEDICAL CORPORATION, A CALIFORNIA PROFESSIONAL
CORPORATION (“SIERRA PRIMARY”), SANTA ANA/TUSTIN PHYSICIANS GROUP, INC., A
CALIFORNIA PROFESSIONAL CORPORATION (“SANTA ANA/TUSTIN”), PEGASUS MEDICAL GROUP,
INC., A CALIFORNIA PROFESSIONAL CORPORATION (“PEGASUS”), ANTELOPE VALLEY MEDICAL
ASSOCIATES, INC., A CALIFORNIA PROFESSIONAL CORPORATION (“ANTELOPE”), NUESTRA
FAMILIA MEDICAL GROUP, INC., A CALIFORNIA PROFESSIONAL CORPORATION (“NUESTRA”),
PROSPECT HEALTH SOURCE MEDICAL GROUP, INC., A CALIFORNIA PROFESSIONAL
CORPORATION (“PROSPECT HEALTH”), PROSPECT PROFESSIONAL CARE MEDICAL GROUP, INC.,
A CALIFORNIA PROFESSIONAL CORPORATION (“PROSPECT PROFESSIONAL”), PROSPECT NWOC
MEDICAL GROUP, INC., A CALIFORNIA PROFESSIONAL CORPORATION (“PROSPECT NWOC”),
APAC MEDICAL GROUP, INC., A CALIFORNIA PROFESSIONAL CORPORATION (“APAC”),
STARCARE MEDICAL GROUP, INC., A CALIFORNIA PROFESSIONAL CORPORATION
(“STARCARE”), GENESIS HEALTHCARE OF SOUTHERN CALIFORNIA, INC., A MEDICAL GROUP,
A CALIFORNIA PROFESSIONAL CORPORATION (“GENESIS”), PROSPECT PHYSICIAN
ASSOCIATES, INC., A CALIFORNIA PROFESSIONAL CORPORATION (“PROSPECT PHYSICIAN”),
POMONA VALLEY MEDICAL GROUP, INC., A CALIFORNIA PROFESSIONAL CORPORATION
(“POMONA VALLEY”), UPLAND MEDICAL GROUP, A PROFESSIONAL MEDICAL CORPORATION, A
CALIFORNIA PROFESSIONAL CORPORATION (“UPLAND”; AND TOGETHER WITH PMG, SIERRA
PRIMARY, SANTA ANA/TUSTIN, PEGASUS, ANTELOPE, NUESTRA, PROSPECT HEALTH, PROSPECT
PROFESSIONAL, PROSPECT NWOC, APAC, GENESIS, PROSPECT PHYSICIAN, AND POMONA
VALLEY, EACH A “PROFESSIONAL CORPORATION” AND COLLECTIVELY, THE “PROFESSIONAL
CORPORATIONS”), PC SHAREHOLDERS (AS DEFINED THEREIN, THE “PC SHAREHOLDERS”) AND
BANC OF AMERICA CAPITAL SOLUTIONS LLC AND BANK OF AMERICA, N.A. (EACH, A
“LENDER”) (AS THE SAME MAY BE AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE “CREDIT SUCCESSION AGREEMENT”), PMG SHALL NOT
RECOGNIZE ANY SHARE TRANSFER OR OTHER ACTION NOT IN COMPLIANCE WITH THE TERMS OF
THIS AGREEMENT.  WHEN USED IN THIS AGREEMENT, THE TERM “APPLICABLE MANAGEMENT
COMPANY” SHALL MEAN (I) WITH RESPECT SIERRA PRIMARY, PEGASUS OR ANTELOPE, SMM
(II) WITH RESPECT TO  PMG, PROSPECT HEALTH, PROSPECT PROFESSIONAL, NUESTRA,
PROSPECT NWOC, SANTA ANA/TUSTIN, APAC OR STARCARE OR GENESIS, PMS (III) WITH
RESPECT TO POMONA VALLEY AND UPLAND, PHCA.

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2.             TERM OF AGREEMENT. THE TERM OF THIS AGREEMENT COMMENCES AS OF THE
DAY AND YEAR FIRST ABOVE WRITTEN AND CONTINUES FOR THIRTY (30) YEARS (“TERM”). 
SO LONG AS THE TERM OF THAT CERTAIN  AMENDED AND RESTATED MANAGEMENT SERVICES
AGREEMENT, MADE AND ENTERED INTO AS OF JUNE 4, 1996, BY AND BETWEEN PMS AND PMG
(AS AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
“MANAGEMENT SERVICES AGREEMENT”) IS AUTOMATICALLY EXTENDED PURSUANT THERETO, THE
TERM OF THIS AGREEMENT SHALL BE AUTOMATICALLY EXTENDED FOR ADDITIONAL
COEXTENSIVE TERMS OF TEN (10) YEARS EACH.  IN THE EVENT THAT THE MANAGEMENT
SERVICES AGREEMENT IS TERMINATED PURSUANT TO ITS TERMS, THIS AGREEMENT SHALL
TERMINATE UPON THE EFFECTIVE DATE OF TERMINATION OF SAID MANAGEMENT SERVICES
AGREEMENT.

3.             OPTION PRICE. THE PURCHASE PRICE FOR THE OPTION (THE “OPTION
PRICE”) IS ONE HUNDRED DOLLARS ($100) AND PMG AND SHAREHOLDER ACKNOWLEDGE
RECEIPT OF SUCH PAYMENT.

4.             EXERCISE OF OPTION.

4.1           DURING THE TERM OF THIS AGREEMENT, PMS MAY ELECT TO EXERCISE THE
OPTION AT ANY TIME.  IN THE EVENT OF AN ELECTION BY PMS TO EXERCISE THE OPTION,
PMS MAY EXERCISE EITHER THE ASSETS OPTION OR THE STOCK OPTION, OR BOTH, AT PMS’S
SOLE DISCRETION.

4.2           NOTWITHSTANDING THE PROVISIONS OF SECTION 4.1 ABOVE, IF THE
MANAGEMENT SERVICES AGREEMENT IS TERMINATED BY EITHER PMG OR PMS, FOR ANY
REASON, PMS’S RIGHT TO EXERCISE THE OPTION IS AUTOMATICALLY AND IMMEDIATELY
EXERCISED AS OF THE TERMINATION DATE OF THE MANAGEMENT SERVICES AGREEMENT SUCH
THAT PMS MAY EXERCISE EITHER THE ASSETS OPTION OR THE STOCK OPTION, OR BOTH, AT
SUCH TIME.

4.3           TO THE EXTENT THAT THE ASSETS OPTION IS EXERCISED BY PMS, PMS WILL
SEND PMG A WRITTEN NOTICE (THE “ASSETS EXERCISE NOTICE”) SPECIFYING THE ASSETS
TO BE PURCHASED.  PMS MAY EXERCISE THE ASSETS OPTION AS MANY TIMES AS PMS ELECTS
IN ITS SOLE DISCRETION.

4.4           TO THE EXTENT THAT THE STOCK OPTION IS EXERCISED BY PMS, PMS WILL
SEND PMG A WRITTEN NOTICE (THE “STOCK EXERCISE NOTICE”) SPECIFYING THE STOCK TO
BE PURCHASED.  PMS MAY DESIGNATE THE SUCCESSOR PHYSICIAN(S) WHO WILL EXERCISE
THE STOCK OPTION AS MANY TIMES AS PMS ELECTS IN ITS SOLE DISCRETION.

4.5           THE ASSETS OPTION AND THE STOCK OPTION ARE INDEPENDENT OF EACH
OTHER, AND CAN BE EXERCISED AT DIFFERENT TIMES DURING THE TERM.

4.6           PMS MAY CANCEL ANY ASSETS EXERCISE NOTICE OR STOCK EXERCISE NOTICE
AT ANY TIME.

4.7           PMG AND SHAREHOLDER SHALL COOPERATE WITH PMS IN ANY DUE DILIGENCE,
AND PMG AND SHAREHOLDER SHALL CAUSE EACH OTHER PROFESSIONAL CORPORATION AND PC
SHAREHOLDER TO COOPERATE WITH PMS OR ANY APPLICABLE MANAGEMENT COMPANY IN ANY
DUE DILIGENCE.

4.8           PMG AND SHAREHOLDER SHALL EXECUTE AND DELIVER SUCH AGREEMENTS,
DOCUMENTS AND INSTRUMENTS AT CLOSING (AS DEFINED BELOW) AS PMS MAY REQUEST
EVIDENCING OR RELATING TO THE PURCHASE OF ASSETS OR STOCK, AS THE CASE MAY BE,
EACH IN FORM AND SUBSTANCE SATISFACTORY TO PMS,

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INCLUDING WITHOUT LIMITATION, THE NON-COMPETITION AGREEMENT IN THE FORM OF
EXHIBIT C ATTACHED HERETO.

5.             ASSIGNMENT OF THE OPTION.  PMS MAY ELECT TO ASSIGN EITHER THE
ASSETS OPTION OR THE STOCK OPTION OR BOTH TO ANY PERSON, BY A WRITTEN
ASSIGNMENT, SIGNED BY BOTH PMS AND THE ASSIGNEE, WHICH DESIGNATES THE ASSETS
AND/OR STOCK.  THE ASSIGNEE SHALL AGREE AS A CONDITION OF THE ASSIGNMENT TO BE
BOUND BY THE TERMS OF THIS AGREEMENT.  THEREAFTER, ONLY THE ASSIGNEE NAMED IN
THE ASSIGNMENT SHALL HAVE THE RIGHT TO EXERCISE THE APPLICABLE ASSETS OPTION
AND/OR THE STOCK OPTION AS TO THE DESIGNATED ASSETS AND/OR STOCK, AND THAT
ASSIGNEE, RATHER THAN PMS, SHALL ENTER INTO A PURCHASE AGREEMENT UPON EXERCISE
OF THE ASSETS OPTION AND/OR THE STOCK OPTION, AS APPLICABLE.  WRITTEN NOTICE OF
ANY SUCH ASSIGNMENT SHALL BE GIVEN BY PMS TO PMG AND SHAREHOLDER WITHIN A
REASONABLE TIME PERIOD FOLLOWING EXECUTION OF ANY ASSIGNMENT PURSUANT TO THIS
AGREEMENT.  WHEN THE CONTEXT SO REQUIRES IN THIS AGREEMENT, THE TERM “PMS” SHALL
BE DEEMED TO REFER TO AN ASSIGNEE HOLDING AN ASSIGNMENT OF AN ASSET OPTION OR
STOCK OPTION, AND THE TERMS “PARTY” AND “PARTIES” SHALL BE DEEMED TO INCLUDE
THAT ASSIGNEE.

6.             PURCHASE PRICE OF THE ASSETS OR STOCK.

6.1           PURCHASE PRICE.

(A)           ASSETS PURCHASE PRICE.  THE PURCHASE PRICE FOR THE ASSETS TO BE
PURCHASED PURSUANT TO THE EXERCISE OF THE ASSETS OPTION SHALL BE $1,000 (“ASSETS
PURCHASE PRICE”).  THE PURCHASE PRICE OF ANY PARTIAL PURCHASE OF THE ASSETS
SHALL BE A PRO-RATA PERCENTAGE OF THE FULL ASSETS PURCHASE PRICE.

(B)           STOCK PURCHASE PRICE.  THE PURCHASE PRICE FOR THE STOCK TO BE
PURCHASED PURSUANT TO THE EXERCISE OF THE STOCK OPTION SHALL BE $1,000 (“STOCK
PURCHASE PRICE”).  THE PURCHASE PRICE OF LESS THAN ALL OF THE ISSUED AND
OUTSTANDING STOCK IS A PRO-RATA PERCENTAGE OF THE FULL STOCK PURCHASE PRICE.

6.2           PAYMENT. FOR THE ASSETS, PMS SHALL PAY TO PMG THE ASSETS PURCHASE
PRICE AT CLOSING (AS DEFINED BELOW) IN THE FORM OF IMMEDIATELY AVAILABLE FUNDS
TRANSFERRED BY WIRE TO AN ACCOUNT AT A FINANCIAL INSTITUTION DESIGNATED BY PMG. 
FOR THE STOCK, PMS SHALL CAUSE THE SUCCESSOR PHYSICIAN TO PAY THE SHAREHOLDER
THE STOCK PURCHASE PRICE.

6.3           CLOSING.  THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE TO
CLOSE FORTY-FIVE (45) DAYS AFTER THE DATE OF EITHER THE ASSETS EXERCISE NOTICE
OR THE STOCK EXERCISE NOTICE, AS THE CASE MAY BE (“CLOSING”), UNLESS EXTENDED BY
PMS.

7.             ADDITIONAL OBLIGATIONS OF PMG AND SHAREHOLDER.

7.1           AFFIRMATIVE COVENANTS.  TO THE EXTENT THAT PMG OR SHAREHOLDER
PARTICIPATE IN THE PRACTICE AND OWN, CONTROL, OR USE THE ASSETS, PMG AND
SHAREHOLDER SHALL, AND SHALL CAUSE EACH OTHER PROFESSIONAL CORPORATION AND PC
SHAREHOLDER TO::

(A)           CONDUCT OF PRACTICE.  CONDUCT PMG’S AND EACH SUCH OTHER
PROFESSIONAL CORPORATION’S BUSINESS EFFICIENTLY AND WITHOUT VOLUNTARY
INTERRUPTION AND PRESERVE ALL RIGHTS, PRIVILEGES, AND FRANCHISES HELD BY PMG AND
EACH SUCH OTHER PROFESSIONAL CORPORATION AND BY

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PMG’S PRACTICE AND THE PRACTICE OF EACH SUCH OTHER PROFESSIONAL CORPORATION,
INCLUDING THE MAINTENANCE OF ALL CONTRACTS, COPYRIGHTS, TRADEMARKS, LICENSES,
REGISTRATIONS, ETC.;

(B)           USE.  MAKE USE OF THE ASSETS AND THE ASSETS OF EACH SUCH OTHER
PROFESSIONAL CORPORATION WITH REASONABLE CARE TO PREVENT DIMINUTION IN VALUE OF
THE PRACTICE AND THE PRACTICE OF EACH SUCH OTHER PROFESSIONAL CORPORATION AND
THE ASSETS AND THE ASSETS OF EACH SUCH OTHER PROFESSIONAL CORPORATION, AND KEEP
THE ASSETS AND THE ASSETS OF EACH SUCH OTHER PROFESSIONAL CORPORATION IN GOOD
REPAIR;

(C)           VALUE.  PERFORM ALL ACTS NECESSARY TO MAINTAIN, PRESERVE, AND
PROTECT THE ASSETS AND THE ASSETS OF EACH SUCH OTHER PROFESSIONAL CORPORATION,
AND MAINTAIN FIRE AND EXTENDED COVERAGE INSURANCE ON THE ASSETS IN THE AMOUNTS
AND UNDER POLICIES ACCEPTABLE TO PMS AND THE APPLICABLE MANAGEMENT COMPANIES,
AND PROVIDE PMS AND THE APPLICABLE MANAGEMENT COMPANIES WITH THE ORIGINAL
POLICIES AND CERTIFICATES AT PMS’S OR THE APPLICABLE MANAGEMENT COMPANY’S
REQUEST;

(D)           FINANCING STATEMENTS.  EXECUTE AND DELIVER TO PMS AND THE
APPLICABLE MANAGEMENT COMPANIES, ALL FINANCING STATEMENTS AND OTHER DOCUMENTS
THAT PMS OR ANY APPLICABLE MANAGEMENT COMPANY REQUESTS, IN ORDER TO PUT THIRD
PARTIES ON NOTICE OF THIS AGREEMENT;

(E)           ACCESS.  PERMIT PMS AND EACH APPLICABLE MANAGEMENT COMPANY, ITS
REPRESENTATIVES, AND ITS AGENTS TO INSPECT THE ASSETS AND THE ASSETS OF THE EACH
OTHER PROFESSIONAL CORPORATIONS AT ANY TIME, AND TO MAKE COPIES OF RECORDS
PERTAINING TO THE ASSETS AND THE ASSETS OF EACH OTHER PROFESSIONAL CORPORATION,
AT REASONABLE TIMES AT THE APPLICABLE MANAGEMENT COMPANY’S REQUEST;

(F)            REPORTS. FURNISH PMS AND THE APPLICABLE MANAGEMENT COMPANIES ANY
REPORTS RELATING TO THE ASSETS AND THE ASSETS OF EACH OTHER PROFESSIONAL
CORPORATION AT PMS’S OR AT THE APPLICABLE MANAGEMENT COMPANY’S REQUEST;

(G)           DEFAULTS. NOTIFY PMS AND THE APPLICABLE MANAGEMENT COMPANIES
PROMPTLY IN WRITING OF ANY DEFAULT, POTENTIAL DEFAULT, OR ANY DEVELOPMENT THAT
MIGHT HAVE A MATERIAL ADVERSE EFFECT ON THE ASSETS, THE ASSETS OF EACH OTHER
PROFESSIONAL CORPORATION, THE STOCK OR THE EQUITY INTEREST IN ANY OTHER
PROFESSIONAL CORPORATION, OR THE PRACTICE OR ANY PRACTICE OF ANY OTHER
PROFESSIONAL CORPORATION, OR OF ANY LITIGATION THAT MAY HAVE A MATERIAL ADVERSE
EFFECT ON THE PRACTICE OR ANY PRACTICE OF ANY OTHER PROFESSIONAL CORPORATION;

(H)           EXPENSES.  PAY ALL EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED
BY PMS IN THE PERFECTION, PRESERVATION, REALIZATION, ENFORCEMENT, AND EXERCISE
OF ITS RIGHTS UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ACCOUNTING,
CORRESPONDENCE, COLLECTION EFFORTS, FILING, RECORDING, AND RECORDKEEPING;

(I)            INDEMNITY.  INDEMNIFY PMS AGAINST LOSSES, LIABILITIES, OR
DAMAGES, COSTS AND EXPENSES OF ANY AND, INCLUDING REASONABLE ATTORNEYS’ FEES,
CAUSED TO PMS BY REASON OF ITS INTEREST IN THE ASSETS AND/OR THE STOCK;

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(J)            TAXES.  PAY PROMPTLY WHEN DUE ALL TAXES AND ASSESSMENTS OWED IN
CONNECTION WITH THE ASSETS AND THE ASSETS OF EACH OTHER PROFESSIONAL CORPORATION
AND THE STOCK AND THE EQUITY INTEREST IN EACH OTHER PROFESSIONAL CORPORATION;
AND

(K)           DELIVERY OF CERTIFICATES.  DELIVER TO PMS, ALL CERTIFICATES
HERETOFORE ISSUED REPRESENTING ALL OF THE SHARES OF PMG’S CAPITAL STOCK HELD OF
RECORD OR BENEFICIALLY OWNED BY SHAREHOLDER, AND EACH CERTIFICATE HEREAFTER
ISSUED REPRESENTING ANY SHARE OF THE PMG’S’ CAPITAL STOCK, WITH EACH CERTIFICATE
ENDORSED IN BLANK FOR TRANSFER.  NOTWITHSTANDING THE FOREGOING, THIS
SECTION 7.1(K) SHALL ONLY APPLY IN THE EVENT THAT THE CREDIT SUCCESSION
AGREEMENT IS NO LONGER IN EFFECT.

7.2           NEGATIVE COVENANTS.  EXCEPT AS REQUIRED UNDER THE CREDIT
SUCCESSION AGREEMENT OR UNDER THE LOAN AND SECURITY AGREEMENT, DATED AS OF THE
DATE HEREOF, AMONG HOLDINGS, THE MANAGEMENT COMPANIES, THE NON-MANAGEMENT
COMPANIES, THE PROFESSIONAL CORPORATIONS AND THE LENDER, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE PMS OR THE APPLICABLE MANAGEMENT COMPANIES, PMG AND
SHAREHOLDER SHALL NOT (AND SHALL NOT PERMIT ANY OTHER PROFESSIONAL CORPORATION
OR PC SHAREHOLDER TO):

(A)           TRANSFER.  SELL, LEASE, TRANSFER, OR OTHERWISE DISPOSE OF THE
ASSETS OR THE ASSETS OF ANY OTHER PROFESSIONAL CORPORATION OR STOCK OR THE
EQUITY INTEREST IN ANY OTHER PROFESSIONAL CORPORATION;

(B)           DEBT.  INCUR, GUARANTEE, ASSUME OR OTHERWISE BECOME LIABLE FOR ANY
BORROWING OR INCREASE ANY EXISTING INDEBTEDNESS; OR DISCHARGE OR CANCEL ANY DEBT
OWED TO PMG OR ANY OTHER PROFESSIONAL CORPORATION;

(C)           NO FURTHER HYPOTHECATION.  PLEDGE, HYPOTHECATE, ENCUMBER, REDEEM
OR DISPOSE OF THE ASSETS OR ANY OF THE ASSETS OF ANY OTHER PROFESSIONAL
CORPORATION, THE STOCK OR ANY INTEREST THEREIN, OR ANY EQUITY INTEREST IN ANY
OTHER PROFESSIONAL CORPORATION OR AN INTEREST THEREIN UNTIL ALL OF PMG’S
OBLIGATIONS UNDER THIS AGREEMENT HAVE BEEN FULLY SATISFIED OR THE ASSETS OR THE
STOCK HAS BEEN RELEASED;

(D)           LOCATION.  MOVE THE ASSETS FROM THEIR PRESENT LOCATIONS WITHOUT
THE PRIOR WRITTEN CONSENT OF THE PMS;

(E)           USE.  USE THE ASSETS, OR THE ASSETS OF OTHER PROFESSIONAL
CORPORATIONS, OR THE STOCK, OR ANY EQUITY INTEREST IN ANY OTHER PROFESSIONAL
CORPORATIONS, FOR ANY UNLAWFUL PURPOSE OR IN ANY WAY THAT WOULD VOID ANY
EFFECTIVE INSURANCE;

(F)            NAME AND LOCATION CHANGES.  CHANGE THE NAME OR PLACE OF BUSINESS
OR USE A FICTITIOUS BUSINESS NAME WITHOUT THE PRIOR EXPRESS CONSENT OF PMS; AND

(G)           ISSUANCE OF STOCK; CHANGE IN OWNERSHIP; MERGERS AND
CONSOLIDATION.  PERMIT ANY ISSUANCE OF STOCK, ANY EQUITY INTEREST IN ANY OTHER
PROFESSIONAL CORPORATION, OTHER EQUITY, OR DEBT; PERMIT ANY CHANGE IN THE
COMPOSITION OR RESPECTIVE PERCENTAGE OWNERSHIP OF PMG OR ANY OTHER PROFESSIONAL
CORPORATION; PERMIT PMG OR ANY OTHER PROFESSIONAL CORPORATION TO BE MERGED,
CONSOLIDATED OR OTHERWISE REORGANIZED WITH OR INTO ANY OTHER CORPORATION,

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PARTNERSHIP, TRADE, BUSINESS, OR THE LIKE; AMEND OR OTHERWISE MODIFY ITS
ARTICLES OF INCORPORATION AND BYLAWS; DISSOLVE; OR ENTER INTO ANY AGREEMENT WITH
ANY PERSON TO DO ANY OF THE FOREGOING.

8.             CONFIDENTIALITY.  THE PARTIES SHALL USE ALL GOOD FAITH EFFORTS TO
KEEP THE CONTENTS OF THIS AGREEMENT AND ALL OTHER ASPECTS OF THE NEGOTIATIONS
PRECEDING EXECUTION OF THIS AGREEMENT CONFIDENTIAL.  UNLESS REQUIRED BY LAW,
PMS, PMG AND SHAREHOLDER SHALL NOT DISCLOSE THE CONTENTS OF THIS AGREEMENT OR
THE NEGOTIATIONS LEADING TO THIS AGREEMENT TO THIRD PARTIES WITHOUT THE PRIOR
WRITTEN CONSENT OF THE OTHER PARTY.  PMS SHALL ENSURE THAT ALL OF THE ASSIGNEES
LIKEWISE COMPLY WITH THE OBLIGATIONS OF CONFIDENTIALITY IMPOSED BY THIS SECTION,
EXCEPT THAT PMS AND THE ASSIGNEES MAY DISCLOSE THE CONTENTS OF SUCH TO THEIR
RESPECTIVE AGENTS, REPRESENTATIVES, CONTRACTORS, AND EMPLOYEES TO THE EXTENT
NECESSARY TO EXERCISE THEIR RESPECTIVE RIGHTS OR PERFORM THEIR RESPECTIVE
OBLIGATIONS HEREUNDER.

9.             GENERAL.

9.1           COMPLIANCE WITH LAW.  PMG AND SHAREHOLDER SHALL, AND SHALL CAUSE
EACH OTHER PROFESSIONAL CORPORATION TO, COMPLY WITH ALL APPLICABLE REQUIREMENTS
OF THE JOINT COMMISSION ON THE ACCREDITATION OF HEALTHCARE ORGANIZATIONS, THE
MEDICARE AND MEDICAID PROGRAMS, APPLICABLE STATE LAW AND REGULATIONS, AND OTHER
LICENSING AND ACCREDITATION AUTHORITIES.

9.2           RELATIONSHIP OF PARTIES.  IN THE EXERCISE OF THEIR RESPECTIVE
RIGHTS AND THE PERFORMANCE OF THEIR RESPECTIVE OBLIGATIONS UNDER THIS AGREEMENT,
PMG AND SHAREHOLDER, ON THE ONE HAND, AND PMS (OR ANY ASSIGNEE), ON THE OTHER
HAND, ARE ACTING IN THE CAPACITY OF THE GRANTOR AND GRANTEE OF AN OPTION TO
PURCHASE ALL OR A PORTION OF THE ASSETS AND/OR STOCK, AND NOTHING IN THIS
AGREEMENT IS INTENDED NOR SHALL BE CONSTRUED TO CREATE BETWEEN THE PARTIES AN
EMPLOYER/EMPLOYEE RELATIONSHIP, A PARTNERSHIP OR JOINT VENTURE RELATIONSHIP OR A
LANDLORD/TENANT RELATIONSHIP.

9.3           ASSIGNMENT.  ALL OF PMS’S RIGHTS AND DUTIES UNDER THIS AGREEMENT
MAY BE ASSIGNED OR DELEGATED BY PMS OR PROSPECT MEDICAL HOLDINGS, INC., A
DELAWARE CORPORATION (“HOLDINGS”), INCLUDING BUT NOT LIMITED TO AN ASSIGNMENT TO
LENDER; PROVIDED, HOWEVER, THAT PMS OR HOLDINGS, SHALL GIVE WRITTEN NOTICE OF
ANY SUCH ASSIGNMENT TO PMG AND SHAREHOLDER WITHIN A REASONABLE TIME PERIOD. 
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NEITHER THIS AGREEMENT
NOR THE RIGHTS AND DUTIES OF THIS AGREEMENT MAY BE ASSIGNED OR DELEGATED BY PMG
OR SHAREHOLDER.  THIS AGREEMENT BINDS THE SUCCESSORS, HEIRS, AND AUTHORIZED
ASSIGNEES OF THE PARTIES.

9.4           ENTIRE AGREEMENT.  EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT
TO THE CONTRARY, THIS AGREEMENT, INCLUDING ITS INCORPORATED EXHIBITS,
CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE OPTION,
AND SUPERSEDES ALL OTHER AND PRIOR AGREEMENTS ON THE SAME SUBJECT, WHETHER
WRITTEN OR ORAL AND CONTAINS ALL OF THE COVENANTS AND AGREEMENTS BETWEEN THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF.  EXCEPT AS EXPRESSLY PROVIDED
IN THIS AGREEMENT TO THE CONTRARY, EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
THAT NO REPRESENTATIONS, INDUCEMENTS, PROMISES, OR AGREEMENTS, ORALLY OR
OTHERWISE, HAVE BEEN MADE BY ANY OTHER PARTY HERETO, OR BY ANYONE ACTING ON
BEHALF OF ANY PARTY HERETO, THAT ARE NOT EMBODIED HEREIN, AND THAT NO AGREEMENT,
STATEMENT, OR PROMISE NOT CONTAINED IN THIS AGREEMENT SHALL BE VALID OR
BINDING.  THIS AGREEMENT AMENDS AND RESTATES THE PRIOR ASSIGNABLE OPTION
AGREEMENT

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IN ITS ENTIRETY.  THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT
THAT THE RIGHTS AND OBLIGATIONS UNDER THE PRIOR AGREEMENT ARE IN ALL RESPECTS
CONTINUING UNDER THIS AGREEMENT WITH ONLY THE TERMS BEING MODIFIED FROM AND
AFTER THE DATE HEREOF AS PROVIDED IN THIS AGREEMENT.

9.5           COUNTERPARTS.  THIS AGREEMENT, AND ANY AMENDMENTS HERETO, MAY BE
EXECUTED IN COUNTERPARTS, EACH OF WHICH SHALL CONSTITUTE AN ORIGINAL DOCUMENT,
BUT WHICH TOGETHER SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT.

9.6           HEADINGS.  THE SECTION HEADINGS CONTAINED IN THIS AGREEMENT ARE
INSERTED FOR CONVENIENCE ONLY AND SHALL NOT AFFECT IN ANY WAY THE MEANING OR
INTERPRETATION OF THIS AGREEMENT.

9.7           NOTICES.  ANY NOTICES REQUIRED OR PERMITTED TO BE GIVEN HEREUNDER
BY ANY PARTY TO ANOTHER SHALL BE IN WRITING AND SHALL BE DEEMED DELIVERED UPON
PERSONAL DELIVERY, TWENTY-FOUR (24) HOURS FOLLOWING DEPOSIT WITH A COURIER FOR
OVERNIGHT DELIVERY OR SEVENTY TWO (72) HOURS FOLLOWING DEPOSIT IN THE U.S. MAIL,
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN-RECEIPT REQUESTED,
ADDRESSED TO THE PARTIES AT THE FOLLOWING ADDRESSES OR TO SUCH OTHER ADDRESSES
AS THE PARTIES MAY SPECIFY IN WRITING:

If to a PMG

Or
Shareholder:                                                                                                             
c/o Prospect Medical Group, Inc.
1920 East 17th Street, Suite 200
Santa Ana, California
Attention: Jacob Y. Terner, M.D.

If to PMS:

c/o Prospect Medical Holdings, Inc.
400 Corporate Pointe, Suite 525
Culver City, California  90230
Attention: Stewart Kahn, Executive Vice President

9.8           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

9.9           AMENDMENT.  THIS AGREEMENT MAY BE AMENDED AT ANY TIME BY AGREEMENT
OF THE PARTIES, PROVIDED THAT ANY AMENDMENT SHALL BE IN WRITING AND EXECUTED BY
ALL PARTIES.

9.10         SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT IS HELD BY A
COURT OF COMPETENT JURISDICTION TO BE INVALID OR UNENFORCEABLE, THE REMAINING
PROVISIONS WILL NEVERTHELESS CONTINUE IN FULL FORCE AND EFFECT, UNLESS SUCH
INVALIDITY OR UNENFORCEABILITY WOULD DEFEAT AN ESSENTIAL BUSINESS PURPOSE OF
THIS AGREEMENT.

9.11         FEES AND EXPENSES.  PMS, PMG, AND SHAREHOLDERS EACH SHALL BEAR
THEIR OWN EXPENSES, INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ AND ACCOUNTANTS’
FEES, INCURRED IN CONNECTION WITH THE PREPARATION OF THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY.

8

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9.12         EXHIBITS AND SCHEDULES.  ALL EXHIBITS AND SCHEDULES ATTACHED TO
THIS AGREEMENT ARE INCORPORATED HEREIN BY THIS REFERENCE AND ALL REFERENCES
HEREIN TO “AGREEMENT” SHALL MEAN THIS AGREEMENT TOGETHER WITH ALL SUCH EXHIBITS
AND SCHEDULES.

9.13         TIME OF ESSENCE.  TIME IS EXPRESSLY MADE OF THE ESSENCE OF THIS
AGREEMENT AND EACH AND EVERY PROVISION HEREOF OF WHICH TIME OF PERFORMANCE IS A
FACTOR.

9.14         DISPUTE RESOLUTION.  IN THE EVENT THE PARTIES HERETO ARE UNABLE TO
RESOLVE ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE PARTIES MAY MUTUALLY
AGREE TO ARBITRATE AS SET FORTH BELOW.

(A)           THERE SHALL BE ONE ARBITRATOR.  IF THE PARTIES SHALL FAIL TO
SELECT A MUTUALLY ACCEPTABLE ARBITRATOR WITHIN TEN (10) DAYS AFTER THE DEMAND
FOR ARBITRATION IS MAILED, THEN THE PARTIES STIPULATE TO ARBITRATION BEFORE A
RETIRED JUDGE SITTING ON THE LOS ANGELES, CALIFORNIA, JUDICIAL ARBITRATION
MEDIATION SERVICES (JAMS) PANEL.

(B)           THE SUBSTANTIVE LAW OF THE STATE OF CALIFORNIA SHALL BE APPLIED BY
THE ARBITRATOR.

(C)           ARBITRATION SHALL TAKE PLACE IN LOS ANGELES, CALIFORNIA, UNLESS
THE APPLICABLE PROFESSIONAL CORPORATION AND A MAJORITY OF THE OTHER PARTIES
OTHERWISE AGREE.  AS SOON AS REASONABLY PRACTICABLE, A HEARING WITH RESPECT TO
THE DISPUTE OR MATTER TO BE RESOLVED SHALL BE CONDUCTED BY THE ARBITRATOR.  AS
SOON AS REASONABLY PRACTICABLE THEREAFTER, THE ARBITRATOR SHALL ARRIVE AT A
FINAL DECISION, WHICH SHALL BE REDUCED TO WRITING, SIGNED BY THE ARBITRATOR AND
MAILED TO EACH OF THE PARTIES AND THEIR LEGAL COUNSEL.

(D)           ALL DECISIONS OF THE ARBITRATOR SHALL BE FINAL, BINDING AND
CONCLUSIVE ON THE PARTIES AND SHALL CONSTITUTE THE ONLY METHOD OF RESOLVING
DISPUTES OR MATTERS SUBJECT TO ARBITRATION PURSUANT TO THIS AGREEMENT.  THE
ARBITRATOR OR A COURT OF APPROPRIATE JURISDICTION MAY ISSUE A WRIT OF EXECUTION
TO ENFORCE THE ARBITRATOR’S JUDGMENT. JUDGMENT MAY BE ENTERED UPON SUCH A
DECISION IN ACCORDANCE WITH APPLICABLE LAW IN ANY COURT HAVING JURISDICTION
THEREOF.

(E)           NOTWITHSTANDING THE FOREGOING, BECAUSE TIME IS OF THE ESSENCE OF
THIS AGREEMENT, THE PARTIES SPECIFICALLY RESERVE THE RIGHT TO SEEK A JUDICIAL
TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION, OR OTHER SIMILAR SHORT TERM
EQUITABLE RELIEF, AND GRANT THE ARBITRATOR THE RIGHT TO MAKE A FINAL
DETERMINATION OF THE PARTIES’ RIGHTS, INCLUDING WHETHER TO MAKE PERMANENT OR
DISSOLVE SUCH COURT ORDER.

(F)            NOTWITHSTANDING THE FOREGOING, ANY AND ALL ARBITRATION
PROCEEDINGS ARE CONDITIONAL UPON SUCH PROCEEDINGS BEING COVERED WITHIN THE
PARTIES’ RESPECTIVE RISK INSURANCE POLICIES.

9.15         ATTORNEYS’ FEES.  SHOULD ANY OF THE PARTIES HERETO INSTITUTE ANY
ACTION OR PROCEDURE TO ENFORCE THIS AGREEMENT OR ANY PROVISION HEREOF (INCLUDING
WITHOUT LIMITATION, ARBITRATION), OR FOR DAMAGES BY REASON OF ANY ALLEGED BREACH
OF THIS AGREEMENT OR OF ANY PROVISION HEREOF, OR FOR A DECLARATION OF RIGHTS
HEREUNDER (INCLUDING, WITHOUT LIMITATION, BY MEANS OF ARBITRATION), THE
PREVAILING PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE ENTITLED TO RECEIVE

9

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FROM THE OTHER PARTY ALL COSTS AND EXPENSES, INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH
SUCH ACTION OR PROCEEDING.

9.16         FURTHER ASSURANCES.  THE PARTIES SHALL TAKE SUCH ACTIONS AND
EXECUTE AND DELIVER SUCH FURTHER DOCUMENTATION AS MAY REASONABLY BE REQUIRED IN
ORDER TO GIVE EFFECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE
INTENTIONS OF THE PARTIES HERETO.

9.17         RIGHTS CUMULATIVE.  THE VARIOUS RIGHTS AND REMEDIES HEREIN GRANTED
TO THE RESPECTIVE PARTIES HERETO SHALL BE CUMULATIVE AND IN ADDITION TO ANY
OTHER RIGHTS ANY SUCH PARTY MAY BE ENTITLED TO UNDER LAW.  THE EXERCISE OF ONE
OR MORE RIGHTS OR REMEDIES BY A PARTY SHALL NOT IMPAIR THE RIGHT OF SUCH PARTY
TO EXERCISE ANY OTHER RIGHT OR REMEDY, AT LAW OR EQUITY.

9.18         SPOUSAL CONSENT.   SHAREHOLDER SHALL CAUSE HIS SPOUSE TO EXECUTE A
SPOUSAL JOINDER AND CONSENT, SUBSTANTIALLY IN THE FORM OF EXHIBIT A ATTACHED
HERETO, SIGNIFYING SUCH SPOUSE’S CONSENT TO THIS AGREEMENT AND SUCH SPOUSE’S
AGREEMENT THAT ANY RIGHTS THAT SUCH SPOUSE MAY HAVE, AS A RESULT OF A COMMUNITY
PROPERTY OR OTHER INTEREST IN THE STOCK, SHALL BE SUBJECT TO THE PROVISIONS OF
THIS AGREEMENT.  IT IS INTENDED BY THIS AGREEMENT THAT SHAREHOLDER SHALL SUBJECT
HIS ENTIRE INTEREST IN THE STOCK TO THE TERMS OF THIS AGREEMENT, IRRESPECTIVE OF
ANY COMMUNITY PROPERTY OR OTHER INTEREST OF HIS SPOUSE.

<The remainder of the page is intentionally blank.>

10

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IN WITNESS WHEREOF, PMS, PMG and Shareholder execute this Agreement by their
duly authorized representatives as set forth below.

“PMS”

“PMG”

 

 

PROSPECT MEDICAL SYSTEMS, INC., a Delaware corporation

 

 

 

By:                                                                         

Name:     R. Stewart Kahn  

Title:       Executive Vice President    

 

PROSPECT MEDICAL GROUP, INC., a California professional corporation

 

 

 

By:                                                                         

Name:     Jacob Y. Terner, M.D.        

Title:       Chief Executive Officer       

 

 

“SHAREHOLDER”

 

 

 

JACOB Y. TERNER

 

 

 

 

                                                                               

Jacob Y. Terner, individually

 

[Signature Page to the Amended and Restated
Assignable Option Agreement]

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SPOUSAL JOINDER AND CONSENT

I am the spouse of Jacob Y. Terner, M.D., a shareholder (the “Shareholder”) of
Prospect Medical Group, Inc., a California professional medical corporation
(“PMG”).  To the extent that I have any interest in any of the Assets (as that
term is defined in the Second Amended and Restated Assignable Option Agreement
(the “Assignable Option Agreement”), entered into as of this date, by and among
Shareholder, PMG and Prospect Medical Systems, Inc., a Delaware corporation
(“PMS”), I hereby join in the Assignable Option Agreement and agree to be bound
by its terms and conditions to the same extent as my spouse.  I have read the
Assignable Option Agreement, understand its terms and conditions, and to the
extent that I have felt it necessary, have retained independent legal counsel to
advise me concerning the legal effect of the Assignable Option Agreement and
this Spousal Joinder and Consent.

I understand and acknowledge that PMS is significantly relying on the validity
and accuracy of this Spousal Joinder and Consent in entering into the Assignable
Option Agreement.

Executed this 1st day of June, 2007.

Signature:  _________________

Printed or Typed Name: Sandra W. Terner

[Signature Page to the Spousal Joinder and Consent to the Amended and Restated
Assignable Option Agreement]

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EXHIBIT A

ASSETS

1.             All contracts and agreements, including all payor contracts,
vendor contracts, loan agreements, leases and subleases.

2.             All risk pool or other incentive arrangement payments relating to
the Practice, including hospital incentive funds, and any capitation advances to
physicians.

3.             All cash, bank balances, monies in possession of any bank, other
cash items, marketable securities of PMG and prepaid deposits relating to the
Practice.

4.             All accounts receivable of PMG (“Accounts Receivable”) relating
to the Practice.  As used herein, “Accounts Receivable” shall include all rights
to payment for goods or services rendered, whether or not yet earned by
performance, all other obligations and receivables from others no matter how
evidenced relating to the Practice, including purchase orders, notes,
instruments, drafts and acceptances and all guarantees of the foregoing and
security therefor, relating to the Practice.

5.             All supplies and inventory relating to the Practice.

6.             All patient records, files and X-rays relating to the Practice.

7.             All of PMG’s goodwill relating to the Practice, which may include
location goodwill, name recognition goodwill, patient allegiance, etc.

8.             All business, financial and accounting records and books of
account relating to the Practice, exclusive of PMG’s Articles, Bylaws, corporate
minutes, stock shares and general ledger.

9.             PMG’s right to reimbursement for all professional services
provided to managed care and fee-for-service patients relating to the Practice.

10.           All of PMG’s furniture, fixtures, leasehold improvements,
machinery, equipment, inventories, supplies and other like tangible personal
property used in the Practice.

11.           All trademarks, trade names, fictitious business names,
copyrights, logos, licenses, ownership interests in telephone numbers at the
Practice, or related items of PMG that in any way pertain to the Practice.

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EXHIBIT B

STOCK

Stock of PMG has been pledged to Lender pursuant to the terms of that certain
Pledge Agreement, dated as of the June 1, 2007 executed in favor of Lender by
Jacob Y. Terner, as the same may be amended, supplemented, restated or otherwise
modified from time to time, and as  such pledge has been reaffirmed pursuant to
the term of that certain Amended and Restated Credit Succession Agreement, dated
as of June 1, 2007, by and among, Shareholder, PMS, SMM, PHR, the Professional
Corporations, the PC Shareholders and Lender, as the same may be amended,
supplemented, restated or otherwise modified from time to time.

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EXHIBIT C

NON-COMPETITION AGREEMENT

THIS NON-COMPETITION AGREEMENT (“Agreement”) is made as of this ___th day of
[____________], and is effective as of_____________, ____, by and between
Prospect Medical Systems, Inc., a Delaware. corporation (“Systems”), Prospect
Medical Group, Inc., a California professional corporation (“PC”), Jacob Y.
Terner, M.D. (“Professional”), and _________________ (“Successor Physician”).

All capitalized terms used herein and not otherwise expressly defined shall have
the same meanings set forth in the Assignable Option Agreement (defined below).

RECITALS

A.            Systems is in the business of managing medical groups in the State
of California, including PC.

B.            On___________, ___, Systems exercised its Option to designate
Successor Physician to acquire the stock or assets of PC under the terms of that
certain Assignable Option Agreement, dated June 1, 2007 by and between Systems,
PC and Professional (as the same may be amended, supplemented, restated or
otherwise modified from time to time, the “Assignable Option Agreement”).

C.            Pursuant to the terms of System’s Option, Professional is to sell
either the assets or the stock of PC in accordance with the terms of that
certain acquisition agreement by and between PC, Professional and Successor
Physician (“Acquisition Agreement”).

D.            In consideration for Professional’s sale of PC’s stock or assets
to Successor Physician, the parties desire to enter into this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing promises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.

1.             Professional’s Covenants.  As a material inducement for Successor
Physician to acquire the stock or assets of PC from Professional and contingent
on the full and faithful performance of the obligations of the parties under the
Acquisition Agreement, for a period of twenty-four (24) months commencing as of
the date when Professional sells, hypothecates, or otherwise transfers (i) his
stock in the PC or (ii) a material portion of the assets of the PC (the
“Effective Date”), Professional covenants as follows:

1.1           That Professional will not, directly or indirectly (whether as a
sole proprietor, partner, stockholder, director, officer, employee, independent
contractor or in any other capacity as principal or agent) (i) establish,
operate or provide professional medical services within ten (10) miles of any
location at which PC conducts business or any location at which other

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professional corporations managed by Systems as of the Effective Date conduct
business; or (ii) compete with Systems in the provision of the same services or
services substantially similar to those services provided by Systems.
Professional shall be deemed to compete with Systems if Professional provides to
any medical association(s) or group(s) of physicians within ten (10) miles of
any location at which PC conducts business during the term of this Agreement any
services that are the same or substantially similar to any services provided by
Systems pursuant to the terms of its management services agreements.

1.2           That Professional will not, directly or indirectly, (whether as a
sole proprietor, partner, stockholder, director, officer, employee, independent
contractor or in any other capacity as principal or agent) (i) hire or induce
any party to recruit or hire any person who is an employee or independent
contractor of PC or Systems or any of their affiliates; (ii) whether for himself
or any other person or entity, call upon, solicit, divert or take away, or
attempt to solicit, call upon, divert or take away any customers, business or
clients of PC or Systems or their affiliates (including, without limitation, any
third party payors); (iii) solicit, or induce any party to solicit, any
contractors of PC or Systems or their affiliates, to enter into the same or a
similar type of contract with any other party; (iv) for himself or for any other
entity, solicit, divert or take away or attempt to solicit, divert or take away
any of PC’s patients; or (v) disrupt, damage, impair or interfere with the
business of PC or Systems or their affiliates.

These covenants on the part of Professional shall be construed as an agreement
independent of any other provision in this Agreement; and the existence of any
claim or cause of action of Professional against PC or Systems, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by PC or Systems of these covenants.

It is agreed by the parties hereto that if any portion of the covenants
specified in subparagraphs 1.1 and 1.2 above are held to be unreasonable,
arbitrary or against public policy, the covenants herein shall be considered
divisible both as to time and geographic area; and each month of the specified
period shall be deemed a separate period of time, and each quarter mile shall be
deemed a separate geographic area so that the lesser period of time or
geographic area shall remain effective as along as the time or geographic area
are not unreasonable, arbitrary, or against public policy.  The parties hereto
agree that, in the event any court determines the specified time period or the
specified geographic area to be unreasonable, arbitrary or against public
policy, a lesser time period or geographic area which is determined to he
reasonable, nonarbitrary and not against public policy may be enforced against
Professional, where such provisions shall be deemed reformed to the maximum time
or geographic or other limitations permitted by applicable law, as determined by
such court in such action.

The parties agree that the remedy at law for any breach of such covenant or of
the related covenants set forth herein would be inadequate, and that therefore
PC, Systems or any other person entitled to enforce such covenants shall be
entitled to seek injunctive relief thereon in addition to its rights to monetary
damages.

2.             Confidentiality

2.1           PC’s Confidential and Proprietary Information.  In the course of
Professional’s engagement by PC, Professional has had access to certain
confidential or proprietary information

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relating to the patients and operations of PC including, without limitation,
patient lists, training material, brochures, practice development aids,
techniques and other trade secrets, which information will become the
confidential and proprietary information of PC (collectively, the “PC’s
Confidential and Proprietary Information”).  Professional shall maintain all of
PC’s Confidential and Proprietary Information in the strictest confidence and
shall not directly or indirectly use such information at any time, or divulge
any of PC’s Confidential and Proprietary Information at any time to any third
parties, other than (i) PC, Systems or their respective representatives who have
a reasonable need for such information and who have similarly agreed to hold
such information in confidence, without the express prior written consent of PC;
(ii) as may be reasonably necessary in connection with any litigation or dispute
in relation to Professional’s prior operation of the practice through Practice;
or (iii) upon court order to do so.  Professional shall not remove from any of
PC’s practice sites or make copies or other reproductions of any of PC’s
Confidential and Proprietary Information without the express prior written
consent of PC. Upon the Effective Date of this Agreement, Professional shall
immediately return any and all original documents and materials containing any
of PC’s Confidential and Proprietary Information, including any and all copies
or other reproductions thereof, to PC.

2.2           Systems’ Confidential and Proprietary Information.

2.2.1        Professional recognizes the proprietary interest of Systems in any
of Systems’ Confidential and Proprietary Information (as hereinafter defined).
Professional acknowledges and agrees that any and all Confidential and
Proprietary Information of Systems communicated to, learned of, or otherwise
acquired by Professional in the course of Professional’s engagement by the PC
shall be the property of Systems.  Professional further acknowledges and
understands that Professional’s use or disclosure of Systems’ Confidential and
Proprietary Information will result in irreparable injury and damage to
Systems.  As used herein, “Systems’ Confidential and Proprietary Information”
means all trade secrets and other confidential and/or proprietary information of
Systems and its affiliates, including information derived from reports,
investigations, research, work in progress, codes, marketing and sales programs,
financial projections, costs summaries, pricing formula, contract analysis,
financial information, projections, confidential filings with any state or
federal agency, and all other confidential concepts, methods of doing business,
ideas, materials or information (other than the PC’s patient records) of Systems
whether prepared for, by or on behalf of Systems or its employees, officers,
directors, agents, representatives, or consultants.

2.2.2        Professional acknowledges and agrees that Systems is entitled to
prevent the disclosure or improper use of any of Systems’ Confidential and
Proprietary Information.  Professional agrees at all times to hold in strictest
confidence and not to disclose to any person, firm or corporation and not to
use, except in the pursuit of the business of PC or Systems, Systems’
Confidential and Proprietary Information, without the prior written consent of
Systems; unless (i) such information becomes known or available to the public
generally through no wrongful act of Professional or (ii) disclosure is required
by law or the rule, regulation or order of any governmental authority under
color of law; provided, that prior to disclosing any of Systems’ Confidential
and Proprietary Information pursuant to this clause (ii), Professional shall, if
possible, give prior written notice thereof to Systems and provide Systems with
the opportunity to contest such disclosure.  Professional shall take all
necessary and proper

--------------------------------------------------------------------------------

precautions against disclosure of any of Systems’ Confidential and Proprietary
Information to unauthorized persons.  Upon execution of this Agreement,
Professional shall cease all use of any of Systems’ Confidential and Proprietary
Information and shall execute such documents as may be reasonably necessary to
evidence abandonment of any claim thereto.

2.2.3        Upon the execution of this Agreement, and at any time upon the
request of Systems, Professional will promptly deliver or cause to be delivered
to Systems all documents, data and other information in their possession that
contains or is related to any of Systems’ Confidential and Proprietary
Information regarding Systems or its affiliates.  Professional shall not take or
retain any documents or other information, or any reproduction or excerpt
thereof, containing any of Systems’ Confidential and Proprietary Information.

3.             Professional’s Representation.  Professional specifically
acknowledges, represents, and warrants that (i) each of Professional’s covenants
set forth in this Agreement are being made in connection with the Acquisition
Agreement; (ii) such covenants are reasonable and necessary to protect the
legitimate interests of Systems, PC and their respective affiliates; and
(iii) Successor Physician would not have entered into the Acquisition Agreement
in the absence of such restrictions.

4.             Miscellaneous.

4.1           Successors and Assigns.  This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective heirs (as
applicable), legal representatives, and permitted successors and assigns.  No
party may assign this Agreement or the rights, interests or obligations
hereunder; provided, however, each of Systems and PC may assign any or all of
its respective rights and interests hereunder to one or more of its respective
affiliates. Any assignment in contravention of this Section shall be null and
void.

4.2           Counterparts.  This Agreement, and any amendments thereto, may be
executed in counterparts, each of which shall constitute an original document,
but which together shall constitute one and the same instrument.

4.3           Headings.  The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

4.4           Amendment.  This Agreement may not be amended except by a writing
executed by all parties.

4.5           Time of Essence.  Time is expressly made of the essence of this
Agreement and each and every provision hereof of which time of performance is a
factor.

4.6           Notices.  Any notices required or permitted to be given hereunder
by any party to the other shall be in writing and shall be deemed delivered upon
personal delivery; twenty-four (24) hours following deposit with a courier for
overnight delivery; or five (5) days following deposit in the U.S. Mail,
registered or certified mail, postage prepaid, return-receipt requested,
addressed to the parties at the following addresses or to such other addresses
as the parties may specify in writing:

--------------------------------------------------------------------------------

If to
Professional:                                                                                                 
Jacob Y. Terner, M.D.

__________________
__________________
__________________

If to
Systems:                                                                                                                      
Prospect Medical Systems, Inc.

__________________
__________________
__________________

If to
PC:                                                                                                                                                    
Prospect Medical Group, Inc.

__________________
__________________
__________________

If to Successor Physician:

__________________
__________________
__________________

4.7           Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of California without reference to the
conflict of laws provisions thereof.

4.8           Injunctive Relief.  The parties hereto acknowledge and agree that
a breach by Professional of this Agreement will cause irreparable damage to
Systems or PC, as applicable, the exact amount of which will be difficult to
ascertain, and that remedies at law for any such breach will be inadequate. 
Accordingly, Professional agrees that if Professional breaches this Agreement,
then Systems and PC, as appropriate, shall be entitled to injunctive relief, and
Professional agrees not to assert in any proceeding that Systems or PC, as
applicable, has an adequate remedy at law.  Professional shall pay the
reasonable fees and expenses, including attorneys fees, incurred by Systems, PC
or any successor or assign in enforcing this Agreement.

4.9           Severability.  If any provision or portion of this Agreement is
held by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Agreement will nevertheless continue in full force and effect
and shall not be invalidated or rendered unenforceable or otherwise adversely
affected, unless such invalidity or unenforceability would defeat an essential
business purpose of this Agreement.  Without limiting the generality of the
foregoing, if the provisions of this Agreement shall be deemed to create a
restriction, which is unreasonable as to either duration or geographical area or
both, the parties agree that the provisions of this Agreement shall be enforced
for such duration and in such geographic area as any court of competent
jurisdiction may determine to be reasonable.

4.10         Attorneys’ Fees.  Should any of Systems, PC or Professional
institute any action or procedure to enforce this Agreement or any provision
hereof, or for damages by reason of any alleged breach of this Agreement or of
any provision hereof, or for a declaration of rights hereunder (including
without limitation arbitration), the prevailing party(ies) in any such action

--------------------------------------------------------------------------------

or proceeding shall be entitled to receive from the other party all costs and
expenses, including without limitation reasonable attorneys’ fees, incurred by
the prevailing party(ies) in connection with such action or proceeding.

4.11         Professional’s Practice of Medicine.  Notwithstanding anything to
the contrary in this Agreement, nothing herein is meant to limit or restrict
Professional’s ability to practice medicine as a physician within any radius,
including within 10 miles of any PC location, in the State of California.

[The remainder of the page is intentionally blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.

“Systems”

PROSPECT MEDICAL SYSTEMS, INC.

a Delaware corporation

By:         
                                                                               

R. Stewart Kahn

Title:                       Executive Vice President

“PC”

PROSPECT MEDICAL GROUP, INC.,

a California professional corporation

By:         
                                                                               

Jacob Y. Terner, M.D.

Title:                       Sole Shareholder

“PROFESSIONAL”

JACOB Y. TERNER, M.D.

                                                                               

Jacob Y. Terner, M.D., as an individual

“SUCCESSOR PHYSICIAN”

                                                                               

 

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