**Exhibit 10.7**

**SECOND AMENDED AND RESTATED ASSIGNABLE OPTIONAGREEMENT**

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

**RECITALS**

A.            PMG owns and operates a professionalcorporation that is organized and operated as a medical group and anindependent practice association (the “**Practice**”).

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

C.            Pursuant to the Assignable OptionAgreement dated as of January 13, 2000, among the parties hereto (as amended or otherwise modified prior to thedate hereof, the **Prior Assignable OptionAgreement**”), PMG and Shareholder granted to PMS and PMS acquiredfrom PMG and Shareholder an assignable option to purchase all of the assets ofPMG and the right to designate the purchaser (“**Successor Physician**”) of all or part of the issued andoutstanding stock in PMG.  When used inthis Agreement, the term “**Assets**”shall mean all of PMG’s and Shareholder’s right, title, interest and estate inand to all the assets of every kind and description used in or pertaining tothe 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’sright, title, interest and estate in and to all of the issued and outstandingstock 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 toenter into this Agreement to incorporate within the terms, conditions andprovisions of one agreement all of the terms, conditions and provisionsgoverning assignable options to purchase all of the Assets and the right todesignate the Successor Physician of all or part of the issued and outstandingStock and to amend and restate the terms, conditions and provisions set forthin the Prior Assignable Option Agreement.

NOW, THEREFORE, inconsideration of the foregoing promises and other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged bythe parties, PMS, PMG and Shareholder agree to amend and restate the PriorAssignable Option Agreement in its entirety to read as follows:

# 1.             Grant ofOption.

## 1.1           PMG hereby grants to PMS an assignable option to purchaseall or any part of the Assets (the “**Assets Option**”), on the terms and subject to theconditions set forth in this Agreement.

## 1.2           PMG and Shareholder hereby grant to PMS, the assignableright to designate a Successor Physician or Successor Physicians, which personor persons must be duly licensed physicians in the State of California orotherwise 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 theconditions set forth herein.  In its solediscretion, PMS may designate the amount of Stock which is to bepurchased.  The Assets Option and theStock Option are collectively referred to herein as the “**Option**.”

## 1.3           PMG and Shareholder represent and warrant that as of theday and year first above written and during the term of this Agreement, ExhibitA and Exhibit B are true and complete listings of the Assets andStock, 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 MedicalManagement, Inc., a Delaware corporation (“**SMM**”),ProMed Health Care Administrators, a California corporation (“**PHCA**”; and together with PMS andSMM, each a “**Management Company**” and collectively, the “**Management Companies**”), Prospect HospitalAdvisory Services, Inc., a Delaware corporation (**“PHA”**), Prospect Advantage Network, Inc., aCalifornia corporation (**“PAN”**) andProMed Health Services Company, a California corporation (**“PHS”**), and together with PHA and PAN, eacha “**Non-Management Subsidiary**”and collectively, the “**Non-ManagementSubsidiaries**”, PMG, Sierra Primary Care Medical Group, A MedicalCorporation, a California professional corporation (“**SierraPrimary**”), Santa Ana/Tustin Physicians Group, Inc., a Californiaprofessional corporation (“**Santa Ana/Tustin**”),Pegasus Medical Group, Inc., a California professional corporation (“**Pegasus**”), Antelope Valley MedicalAssociates, Inc., a California professional corporation (“**Antelope**”),Nuestra Familia Medical Group, Inc., a California professional corporation (“**Nuestra**”), Prospect Health SourceMedical Group, Inc., a California professional corporation (“**Prospect Health**”), ProspectProfessional Care Medical Group, Inc., a California professional corporation (“**Prospect Professional**”), ProspectNWOC Medical Group, Inc., a California professional corporation (“**Prospect NWOC**”), APAC MedicalGroup, Inc., a California professional corporation (“**APAC**”),StarCare Medical Group, Inc., a California professional corporation (“**StarCare**”), Genesis Healthcare ofSouthern California, Inc., a Medical Group, a California professionalcorporation (**“Genesis”**),Prospect Physician Associates, Inc., a California professional corporation (**“Prospect Physician”**), Pomona ValleyMedical Group, Inc., a California professional corporation (**“Pomona Valley”**), Upland MedicalGroup, A Professional Medical Corporation, a California professionalcorporation (**“Upland”**; andtogether with PMG, Sierra Primary, Santa Ana/Tustin, Pegasus, Antelope,Nuestra, Prospect Health, Prospect Professional, Prospect NWOC, APAC, Genesis, Prospect Physician, andPomona Valley, each a “**ProfessionalCorporation**” andcollectively, the “**Professional Corporations**”), PCShareholders (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 fromtime to time, the “**Credit Succession Agreement**”), PMG shall not recognize any share transfer or other action notin compliance with the terms of this Agreement. When used in this Agreement, the term “**Applicable Management Company**” shall mean (i) with respectSierra Primary, Pegasus or Antelope, SMM (ii) with respect to  PMG,Prospect Health, Prospect Professional, Nuestra, Prospect NWOC, SantaAna/Tustin, APAC or StarCare or Genesis, PMS (iii) with respect to PomonaValley and Upland, PHCA.

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# 2.             Term ofAgreement. The term of this Agreement commences as of the day and yearfirst 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 enteredinto 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**”) isautomatically extended pursuant thereto, the term of this Agreement shall beautomatically extended for additional coextensive terms of ten (10) yearseach.  In the event that the ManagementServices Agreement is terminated pursuant to its terms, this Agreement shallterminate upon the effective date of termination of said Management ServicesAgreement.

# 3.             OptionPrice. 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 ofOption.

## 4.1           During the Term of this Agreement, PMS may elect toexercise the Option at any time.  In theevent of an election by PMS to exercise the Option, PMS may exercise either theAssets Option or the Stock Option, or both, at PMS’s sole discretion.

## 4.2           Notwithstanding the provisions of Section 4.1above, if the Management Services Agreement is terminated by either PMG or PMS,for any reason, PMS’s right to exercise the Option is automatically andimmediately exercised as of the termination date of the Management ServicesAgreement such that PMS may exercise either the Assets Option or the StockOption, 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 ExerciseNotice**”)specifying the Assets to be purchased. PMS may exercise the Assets Option as many times as PMS elects in itssole 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 bepurchased.  PMS may designate theSuccessor Physician(s) who will exercise the Stock Option as many times as PMSelects in its sole discretion.

## 4.5           The Assets Option and the Stock Option are independent ofeach other, and can be exercised at different times during the Term.

## 4.6           PMS may cancel any Assets Exercise Notice or StockExercise Notice at any time.

## 4.7           PMG and Shareholder shall cooperate with PMS in any duediligence, and PMG and Shareholder shall cause each other ProfessionalCorporation and PC Shareholder to cooperate with PMS or any ApplicableManagement Company in any due diligence.

## 4.8           PMG and Shareholder shall execute and deliver suchagreements, documents and instruments at Closing (as defined below) as PMS mayrequest evidencing or relating to the purchase of Assets or Stock, as the casemay be, each in form and substance satisfactory to PMS, 

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## including withoutlimitation, the Non-Competition Agreement in the form of Exhibit Cattached hereto.

# 5.             Assignmentof the Option.  PMS may elect toassign either the Assets Option or the Stock Option or both to any person, by awritten assignment, signed by both PMS and the assignee, which designates theAssets and/or Stock.  The assignee shallagree as a condition of the assignment to be bound by the terms of thisAgreement.  Thereafter, only the assigneenamed in the assignment shall have the right to exercise the applicable AssetsOption and/or the Stock Option as to the designated Assets and/or Stock, andthat assignee, rather than PMS, shall enter into a purchase agreement uponexercise of the Assets Option and/or the Stock Option, as applicable.  Written notice of any such assignment shallbe given by PMS to PMG and Shareholder within a reasonable time periodfollowing 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 ofan Asset Option or Stock Option, and the terms “party” and “parties” shall bedeemed to include that assignee.

# 6.             PurchasePrice of the Assets or Stock.

## 6.1           Purchase Price.

### (a)           Assets Purchase Price. The purchase price for the Assets to be purchased pursuant to theexercise of the Assets Option shall be $1,000 (“**Assets Purchase Price**”). The purchase price of any partial purchase of the Assets shall be apro-rata percentage of the full Assets Purchase Price.

### (b)           Stock Purchase Price.  The purchase price for the Stock to bepurchased 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 Stockis a pro-rata percentage of the full Stock Purchase Price.

## 6.2           Payment. For the Assets, PMS shall pay to PMG theAssets Purchase Price at Closing (as defined below) in the form of immediatelyavailable funds transferred by wire to an account at a financial institutiondesignated by PMG.  For the Stock, PMSshall cause the Successor Physician to pay the Shareholder the Stock PurchasePrice.

## 6.3           Closing.  Thetransactions contemplated by this Agreement are to close forty-five (45) daysafter the date of either the Assets Exercise Notice or the Stock ExerciseNotice, as the case may be (“**Closing**”), unless extended by PMS.

# 7.             AdditionalObligations of PMG and Shareholder.

## 7.1           Affirmative Covenants.  To the extent that PMG or Shareholderparticipate in the Practice and own, control, or use the Assets, PMG andShareholder shall, and shall cause each other Professional Corporation and PCShareholder to::

### (a)           Conduct of Practice.  Conduct PMG’s and each such otherProfessional Corporation’s business efficiently and without voluntary interruptionand preserve all rights, privileges, and franchises held by PMG and each suchother Professional Corporation and by 

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### PMG’s Practice and thepractice of each such other Professional Corporation, including the maintenanceof all contracts, copyrights, trademarks, licenses, registrations, etc.;

### (b)           Use.  Makeuse of the Assets and the assets of each such other Professional Corporationwith reasonable care to prevent diminution in value of the Practice and thepractice of each such other Professional Corporation and the Assets and theassets of each such other Professional Corporation, and keep the Assets and theassets of each such other Professional Corporation in good repair;

### (c)           Value. Perform all acts necessary to maintain, preserve, and protect the Assetsand the assets of each such other Professional Corporation, and maintain fireand extended coverage insurance on the Assets in the amounts and under policiesacceptable to PMS and the Applicable Management Companies, and provide PMS andthe Applicable Management Companies with the original policies and certificatesat PMS’s or the Applicable Management Company’s request;

### (d)           Financing Statements.  Execute and deliver to PMS and the ApplicableManagement Companies, all financing statements and other documents that PMS orany Applicable Management Company requests, in order to put third parties onnotice 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 otherProfessional Corporations at any time, and to make copies of records pertainingto the Assets and the assets of each other Professional Corporation, atreasonable times at the applicable Management Company’s request;

### (f)            Reports. Furnish PMS and the Applicable ManagementCompanies any reports relating to the Assets and the assets of each otherProfessional Corporation at PMS’s or at the Applicable Management Company’srequest;

### (g)           Defaults. Notify PMS and the Applicable ManagementCompanies promptly in writing of any default, potential default, or anydevelopment that might have a material adverse effect on the Assets, the assetsof each other Professional Corporation, the Stock or the equity interest in anyother Professional Corporation, or the Practice or any practice of any otherProfessional Corporation, or of any litigation that may have a material adverseeffect on the Practice or any practice of any other Professional Corporation;

### (h)           Expenses. Pay all expenses, including attorneys’ fees, incurred by PMS in theperfection, preservation, realization, enforcement, and exercise of its rightsunder 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 andexpenses of any and, including reasonable attorneys’ fees, caused to PMS byreason of its interest in the Assets and/or the Stock;

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### (j)            Taxes.  Paypromptly when due all taxes and assessments owed in connection with the Assetsand the assets of each other Professional Corporation and the Stock and theequity interest in each other Professional Corporation; and

### (k)           Delivery of Certificates.  Deliver to PMS, all certificates heretoforeissued representing all of the shares of PMG’s capital stock held of record orbeneficially owned by Shareholder, and each certificate hereafter issuedrepresenting any share of the PMG’s’ capital stock, with each certificateendorsed in blank for transfer. Notwithstanding the foregoing, this Section 7.1(k) shallonly apply in the event that the Credit Succession Agreement is no longer ineffect.

## 7.2           Negative Covenants. Except as required under the Credit Succession Agreement or under theLoan and Security Agreement, dated as of the date hereof, among Holdings, theManagement Companies, the Non-Management Companies, the ProfessionalCorporations and the Lender, without the prior written consent of the PMS orthe Applicable Management Companies, PMG and Shareholder shall not (and shallnot permit any other Professional Corporation or PC Shareholder to):

### (a)           Transfer. Sell, lease, transfer, or otherwise dispose of the Assets or the assetsof any other Professional Corporation or Stock or the equity interest in anyother Professional Corporation;

### (b)           Debt.  Incur,guarantee, assume or otherwise become liable for any borrowing or increase anyexisting indebtedness; or discharge or cancel any debt owed to PMG or any otherProfessional Corporation;

### (c)           No Further Hypothecation.  Pledge, hypothecate, encumber, redeem ordispose of the Assets or any of the assets of any other ProfessionalCorporation, the Stock or any interest therein, or any equity interest in anyother Professional Corporation or an interest therein until all of PMG’sobligations under this Agreement have been fully satisfied or the Assets or theStock has been released;

### (d)           Location. Move the Assets from their present locations without the prior writtenconsent of the PMS;

### (e)           Use.  Use theAssets, or the assets of other Professional Corporations, or the Stock, or anyequity interest in any other Professional Corporations, for any unlawfulpurpose or in any way that would void any effective insurance;

### (f)            Name and Location Changes.  Change the name or place of business or use afictitious business name without the prior express consent of PMS; and

### (g)           Issuance of Stock; Change in Ownership; Mergers andConsolidation.  Permit any issuanceof Stock, any equity interest in any other Professional Corporation, otherequity, or debt; permit any change in the composition or respective percentageownership of PMG or any other Professional Corporation; permit PMG or any otherProfessional Corporation to be merged, consolidated or otherwise reorganizedwith or into any other corporation, 

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### partnership, trade,business, or the like; amend or otherwise modify its articles of incorporationand bylaws; dissolve; or enter into any agreement with any person to do any ofthe foregoing.

# 8.             Confidentiality.  The parties shall use all good faith effortsto keep the contents of this Agreement and all other aspects of thenegotiations preceding execution of this Agreement confidential.  Unless required by law, PMS, PMG and Shareholdershall not disclose the contents of this Agreement or the negotiations leadingto this Agreement to third parties without the prior written consent of theother party.  PMS shall ensure that allof the assignees likewise comply with the obligations of confidentialityimposed by this Section, except that PMS and the assignees may disclosethe contents of such to their respective agents, representatives, contractors,and employees to the extent necessary to exercise their respective rights orperform their respective obligations hereunder.

# 9.             General.

## 9.1           Compliance with Law.  PMG and Shareholder shall, and shall causeeach other Professional Corporation to, comply with all applicable requirementsof the Joint Commission on the Accreditation of Healthcare Organizations, theMedicare and Medicaid programs, applicable state law and regulations, and otherlicensing and accreditation authorities.

## 9.2           Relationship of Parties.  In the exercise of their respective rightsand the performance of their respective obligations under this Agreement, PMGand 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 purchaseall or a portion of the Assets and/or Stock, and nothing in this Agreement isintended nor shall be construed to create between the parties anemployer/employee relationship, a partnership or joint venture relationship ora landlord/tenant relationship.

## 9.3           Assignment. All of PMS’s rights and duties under this Agreement may be assigned ordelegated by PMS or Prospect Medical Holdings, Inc., a Delaware corporation (“**Holdings**”), including but not limited to anassignment to Lender; *provided*, *however*, that PMS or Holdings, shall givewritten notice of any such assignment to PMG and Shareholder within areasonable time period.  Notwithstandingany other provision of this Agreement, neither this Agreement nor the rightsand duties of this Agreement may be assigned or delegated by PMG orShareholder.  This Agreement binds thesuccessors, heirs, and authorized assignees of the parties.

## 9.4           Entire Agreement. Except as expressly provided in this Agreement to the contrary, thisAgreement, including its incorporated exhibits, constitutes the entireagreement between the parties with respect to the Option, and supersedes allother and prior agreements on the same subject, whether written or oral andcontains all of the covenants and agreements between the parties with respectto the subject matter hereof.  Except asexpressly provided in this Agreement to the contrary, each party to thisAgreement acknowledges that no representations, inducements, promises, oragreements, orally or otherwise, have been made by any other party hereto, orby anyone acting on behalf of any party hereto, that are not embodied herein, andthat no agreement, statement, or promise not contained in this Agreement shallbe valid or binding.  This Agreement amendsand restates the Prior Assignable Option Agreement 

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## in its entirety.  The partieshereto acknowledge and agree that this Agreement that the rights andobligations under the Prior Agreement are in all respects continuing under thisAgreement with only the terms being modified from and after the date hereof asprovided in this Agreement.

## 9.5           Counterparts. This Agreement, and any amendments hereto, may be executed incounterparts, each of which shall constitute an original document, but whichtogether shall constitute one and the same instrument.

## 9.6           Headings. The section headings contained in this Agreement are inserted forconvenience only and shall not affect in any way the meaning or interpretationof this Agreement.

## 9.7           Notices.  Anynotices required or permitted to be given hereunder by any party to anothershall be in writing and shall be deemed delivered upon personal delivery,twenty-four (24) hours following deposit with a courier for overnight deliveryor seventy two (72) hours following deposit in the U.S. Mail, registered orcertified mail, postage prepaid, return-receipt requested, addressed to theparties at the following addresses or to such other addresses as the partiesmay specify in writing:

If to a PMG

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

If to PMS:

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

## 9.8           Governing Law. This Agreement shall be governed by and construed in accordance with thelaws 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 bya court of competent jurisdiction to be invalid or unenforceable, the remainingprovisions will nevertheless continue in full force and effect, unless suchinvalidity or unenforceability would defeat an essential business purpose ofthis Agreement.

## 9.11         Fees and Expenses.  PMS, PMG, and Shareholders each shall beartheir own expenses, including, without limitation, attorneys’ and accountants’fees, incurred in connection with the preparation of this Agreement and thetransactions contemplated hereby.

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## 9.12         Exhibits and Schedules.  All exhibits and schedules attached to thisAgreement are incorporated herein by this reference and all references hereinto “Agreement” shall mean this Agreement together with all such exhibits andschedules.

## 9.13         Time of Essence.  Time is expressly made of the essence of thisAgreement and each and every provision hereof of which time of performance is afactor.

## 9.14         Dispute Resolution.  In the event the parties hereto are unable toresolve any dispute in connection with this Agreement, the parties may mutuallyagree to arbitrate as set forth below.

### (a)           There shall be one arbitrator.  If the parties shall fail to select amutually acceptable arbitrator within ten (10) days after the demand forarbitration is mailed, then the parties stipulate to arbitration before aretired judge sitting on the Los Angeles, California, Judicial ArbitrationMediation Services (JAMS) panel.

### (b)           The substantive law of the State of California shall beapplied by the arbitrator.

### (c)           Arbitration shall take place in Los Angeles, California,unless the applicable Professional Corporation and a majority of the otherparties otherwise agree.  As soon asreasonably practicable, a hearing with respect to the dispute or matter to beresolved shall be conducted by the arbitrator. As soon as reasonably practicable thereafter, the arbitrator shallarrive at a final decision, which shall be reduced to writing, signed by thearbitrator and mailed to each of the parties and their legal counsel.

### (d)           All decisions of the arbitrator shall be final, bindingand conclusive on the parties and shall constitute the only method of resolvingdisputes or matters subject to arbitration pursuant to this Agreement.  The arbitrator or a court of appropriatejurisdiction may issue a writ of execution to enforce the arbitrator’sjudgment. Judgment may be entered upon such a decision in accordance withapplicable law in any court having jurisdiction thereof.

### (e)           Notwithstanding the foregoing, because time is of theessence of this Agreement, the parties specifically reserve the right to seek ajudicial temporary restraining order, preliminary injunction, or other similarshort term equitable relief, and grant the arbitrator the right to make a finaldetermination of the parties’ rights, including whether to make permanent ordissolve such court order.

### (f)            Notwithstanding the foregoing, any and all arbitrationproceedings are conditional upon such proceedings being covered within theparties’ respective risk insurance policies.

## 9.15         Attorneys’ Fees.  Should any of the parties hereto instituteany action or procedure to enforce this Agreement or any provision hereof(including without limitation, arbitration), or for damages by reason of anyalleged breach of this Agreement or of any provision hereof, or for a declarationof rights hereunder (including, without limitation, by means of arbitration),the prevailing party in any such action or proceeding shall be entitled toreceive 

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## from the other party allcosts 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 andexecute and deliver such further documentation as may reasonably be required inorder to give effect to the transactions contemplated by this Agreement and theintentions of the parties hereto.

## 9.17         Rights Cumulative.  The various rights and remedies hereingranted to the respective parties hereto shall be cumulative and in addition toany other rights any such party may be entitled to under law.  The exercise of one or more rights orremedies by a party shall not impair the right of such party to exercise anyother right or remedy, at law or equity.

## 9.18         Spousal Consent.   Shareholder shall cause his spouse toexecute a Spousal Joinder and Consent, substantially in the form of ExhibitA attached hereto, signifying such spouse’s consent to this Agreement andsuch spouse’s agreement that any rights that such spouse may have, as a resultof a community property or other interest in the Stock, shall be subject to theprovisions of this Agreement.  It isintended by this Agreement that Shareholder shall subject his entire interestin the Stock to the terms of this Agreement, irrespective of any community propertyor other interest of his spouse.

<*The remainder of the pageis intentionally blank.*>

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IN WITNESSWHEREOF, PMS, PMG and Shareholder execute this Agreement by their dulyauthorized representatives as set forth below.
| **“PMS”**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | “**PMG”**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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| **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        

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | “**SHAREHOLDER**”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **JACOB  Y. TERNER**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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Jacob Y. Terner, individually

* *                                                                                                                                                                                                                                                |

[*SignaturePage to the Amended and RestatedAssignable Option Agreement*]

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**SPOUSAL JOINDER AND CONSENT**

I am the spouse ofJacob 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 anyof the Assets (as that term is defined in the Second Amended and RestatedAssignable Option Agreement (the “**AssignableOption Agreement**”), entered into as of this date, by and amongShareholder, PMG and Prospect Medical Systems, Inc., a Delawarecorporation (“**PMS**”), I hereby join in the AssignableOption Agreement and agree to be bound by its terms and conditions to the sameextent as my spouse.  I have read theAssignable Option Agreement, understand its terms and conditions, and to theextent that I have felt it necessary, have retained independent legal counselto advise me concerning the legal effect of the Assignable Option Agreement andthis Spousal Joinder and Consent.

I understand andacknowledge that PMS issignificantly relying on the validity and accuracy of this Spousal Joinder andConsent 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 andRestatedAssignable Option Agreement*]

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**EXHIBIT A**

**ASSETS**

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

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

3.             All cash, bank balances, monies inpossession of any bank, other cash items, marketable securities of PMG andprepaid deposits relating to the Practice.

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

5.             All supplies and inventory relatingto the Practice.

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

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

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

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

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

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

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**EXHIBIT B**

**STOCK**

Stock of PMG hasbeen 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, andas  such pledge has been reaffirmedpursuant to the term of that certain Amended and Restated Credit Succession Agreement, datedas of June 1,****2007, by and among, Shareholder, PMS, SMM, PHR, theProfessional Corporations, the PC Shareholders and Lender, as the same may beamended, supplemented, restated or otherwise modified from time to time.

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**EXHIBIT C**

**NON-COMPETITION AGREEMENT**

THISNON-COMPETITION AGREEMENT (“Agreement”) is made as of this ___th day of **[____________**], and is effective asof_____________, ____, by and between Prospect Medical Systems, Inc., aDelaware. corporation (“Systems”), Prospect Medical Group, Inc., a Californiaprofessional corporation (“PC”), Jacob Y. Terner, M.D. (“Professional”), and_________________ (“Successor Physician”).

All capitalizedterms used herein and not otherwise expressly defined shall have the samemeanings set forth in the Assignable Option Agreement (defined below).

**RECITALS**

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

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

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

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

**AGREEMENT**

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

1.             Professional’s Covenants.  As a material inducement for SuccessorPhysician to acquire the stock or assets of PC from Professional and contingenton the full and faithful performance of the obligations of the parties underthe Acquisition Agreement, for a period of twenty-four (24) months commencingas of the date when Professional sells, hypothecates, or otherwise transfers (i) hisstock in the PC or (ii) a material portion of the assets of the PC (the “EffectiveDate”), Professional covenants as follows:

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

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

1.2           That Professional will not, directlyor indirectly, (whether as a sole proprietor, partner, stockholder, director,officer, employee, independent contractor or in any other capacity as principalor agent) (i) hire or induce any party to recruit or hire any person whois an employee or independent contractor of PC or Systems or any of theiraffiliates; (ii) whether for himself or any other person or entity, callupon, solicit, divert or take away, or attempt to solicit, call upon, divert ortake away any customers, business or clients of PC or Systems or theiraffiliates (including, without limitation, any third party payors); (iii) solicit,or induce any party to solicit, any contractors of PC or Systems or theiraffiliates, to enter into the same or a similar type of contract with any otherparty; (iv) for himself or for any other entity, solicit, divert or takeaway 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 orSystems or their affiliates.

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

It is agreed bythe parties hereto that if any portion of the covenants specified insubparagraphs 1.1 and 1.2 above are held to be unreasonable, arbitrary oragainst public policy, the covenants herein shall be considered divisible bothas to time and geographic area; and each month of the specified period shall bedeemed a separate period of time, and each quarter mile shall be deemed aseparate geographic area so that the lesser period of time or geographic areashall remain effective as along as the time or geographic area are notunreasonable, arbitrary, or against public policy.  The parties hereto agree that, in the eventany court determines the specified time period or the specified geographic areato be unreasonable, arbitrary or against public policy, a lesser time period orgeographic area which is determined to he reasonable, nonarbitrary and notagainst public policy may be enforced against Professional, where suchprovisions shall be deemed reformed to the maximum time or geographic or otherlimitations permitted by applicable law, as determined by such court in suchaction.

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

2.             Confidentiality

2.1           PC’s Confidential and ProprietaryInformation.  In the course ofProfessional’s engagement by PC, Professional has had access to certainconfidential or proprietary information 

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relating to thepatients and operations of PC including, without limitation, patient lists,training material, brochures, practice development aids, techniques and othertrade secrets, which information will become the confidential and proprietaryinformation of PC (collectively, the “PC’s Confidential and ProprietaryInformation”).  Professional shallmaintain all of PC’s Confidential and Proprietary Information in the strictestconfidence and shall not directly or indirectly use such information at anytime, or divulge any of PC’s Confidential and Proprietary Information at anytime to any third parties, other than (i) PC, Systems or their respectiverepresentatives who have a reasonable need for such information and who havesimilarly agreed to hold such information in confidence, without the express priorwritten consent of PC; (ii) as may be reasonably necessary in connectionwith any litigation or dispute in relation to Professional’s prior operation ofthe practice through Practice; or (iii) upon court order to do so.  Professional shall not remove from any of PC’spractice sites or make copies or other reproductions of any of PC’sConfidential and Proprietary Information without the express prior writtenconsent of PC. Upon the Effective Date of this Agreement, Professional shallimmediately return any and all original documents and materials containing anyof PC’s Confidential and Proprietary Information, including any and all copiesor other reproductions thereof, to PC.

2.2           Systems’ Confidential andProprietary Information.

2.2.1        Professionalrecognizes the proprietary interest of Systems in any of Systems’ Confidentialand Proprietary Information (as hereinafter defined). Professional acknowledgesand agrees that any and all Confidential and Proprietary Information of Systemscommunicated to, learned of, or otherwise acquired by Professional in thecourse of Professional’s engagement by the PC shall be the property ofSystems.  Professional furtheracknowledges and understands that Professional’s use or disclosure of Systems’Confidential and Proprietary Information will result in irreparable injury anddamage to Systems.  As used herein, “Systems’Confidential and Proprietary Information” means all trade secrets and otherconfidential and/or proprietary information of Systems and its affiliates,including information derived from reports, investigations, research, work inprogress, codes, marketing and sales programs, financial projections, costssummaries, pricing formula, contract analysis, financial information,projections, confidential filings with any state or federal agency, and allother confidential concepts, methods of doing business, ideas, materials orinformation (other than the PC’s patient records) of Systems whether preparedfor, by or on behalf of Systems or its employees, officers, directors, agents,representatives, or consultants.

2.2.2        Professionalacknowledges and agrees that Systems is entitled to prevent the disclosure orimproper use of any of Systems’ Confidential and Proprietary Information.  Professional agrees at all times to hold instrictest confidence and not to disclose to any person, firm or corporation andnot to use, except in the pursuit of the business of PC or Systems, Systems’Confidential and Proprietary Information, without the prior written consent ofSystems; unless (i) such information becomes known or available to thepublic generally through no wrongful act of Professional or (ii) disclosureis required by law or the rule, regulation or order of any governmentalauthority 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 Systemsand provide Systems with the opportunity to contest such disclosure.  Professional shall take all necessary andproper 

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precautionsagainst disclosure of any of Systems’ Confidential and Proprietary Informationto unauthorized persons.  Upon executionof this Agreement, Professional shall cease all use of any of Systems’Confidential and Proprietary Information and shall execute such documents asmay be reasonably necessary to evidence abandonment of any claim thereto.

2.2.3        Upon theexecution of this Agreement, and at any time upon the request of Systems,Professional will promptly deliver or cause to be delivered to Systems alldocuments, data and other information in their possession that contains or isrelated to any of Systems’ Confidential and Proprietary Information regardingSystems or its affiliates.  Professionalshall not take or retain any documents or other information, or anyreproduction or excerpt thereof, containing any of Systems’ Confidential andProprietary Information.

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

4.             Miscellaneous.

4.1           Successors and Assigns.  This Agreement shall be binding upon andshall 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 therights, interests or obligations hereunder; provided, however, each of Systemsand PC may assign any or all of its respective rights and interests hereunderto one or more of its respective affiliates. Any assignment in contravention ofthis 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 originaldocument, but which together shall constitute one and the same instrument.

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

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

4.5           Time of Essence.  Time is expressly made of the essence of thisAgreement and each and every provision hereof of which time of performance is afactor.

4.6           Notices.  Any notices required or permitted to be givenhereunder by any party to the other shall be in writing and shall be deemeddelivered upon personal delivery; twenty-four (24) hours following deposit witha courier for overnight delivery; or five (5) days following deposit in theU.S. Mail, registered or certified mail, postage prepaid, return-receiptrequested, addressed to the parties at the following addresses or to such otheraddresses as the parties may specify in writing:

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

______________________________________________________

If to Systems:                                                                                                                       ProspectMedical Systems, Inc.

______________________________________________________

If to PC:                                                                                                                                                     ProspectMedical Group, Inc.

______________________________________________________

If to SuccessorPhysician:

______________________________________________________

4.7           Governing Law.  This Agreement shall be governed by andconstrued in accordance with the laws of the State of California without referenceto the conflict of laws provisions thereof.

4.8           Injunctive Relief.  The parties hereto acknowledge and agree thata breach by Professional of this Agreement will cause irreparable damage toSystems or PC, as applicable, the exact amount of which will be difficult toascertain, and that remedies at law for any such breach will beinadequate.  Accordingly, Professionalagrees that if Professional breaches this Agreement, then Systems and PC, asappropriate, shall be entitled to injunctive relief, and Professional agreesnot to assert in any proceeding that Systems or PC, as applicable, has anadequate remedy at law.  Professionalshall pay the reasonable fees and expenses, including attorneys fees, incurredby Systems, PC or any successor or assign in enforcing this Agreement.

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

4.10         Attorneys’ Fees.  Should any of Systems, PC or Professionalinstitute any action or procedure to enforce this Agreement or any provisionhereof, or for damages by reason of any alleged breach of this Agreement or ofany provision hereof, or for a declaration of rights hereunder (includingwithout limitation arbitration), the prevailing party(ies) in any such action 

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

4.11         Professional’s Practice of Medicine.  Notwithstanding anything to the contrary inthis Agreement, nothing herein is meant to limit or restrict Professional’sability to practice medicine as a physician within any radius, including within10 miles of any PC location, in the State of California.

[The remainder of the page is intentionally blank.]

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IN WITNESSWHEREOF, the parties hereto have executed this Agreement as of the day and yearfirst written above.

“Systems”

PROSPECT MEDICAL SYSTEMS, INC.

a Delaware corporation

By:                                                                                          

R. Stewart Kahn

Title:                       ExecutiveVice President

“PC”

PROSPECT MEDICAL GROUP, INC.,

a California professional corporation

By:                                                                                          

Jacob Y. Terner, M.D.

Title:                       SoleShareholder

“PROFESSIONAL”

JACOB Y. TERNER, M.D.

                                                                                

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

“SUCCESSOR PHYSICIAN”

                                                                                

 

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