Exhibit 10.86


 


Prospect Medical Holdings, Inc.


2008 Omnibus Equity
Incentive Plan


 


Incentive Stock Option
Agreement


 


WHEREAS,
the Company has adopted the Plan (as defined below), the terms of which are
hereby incorporated by reference and made a part of this Incentive Stock Option
Agreement (the “Agreement”); and


 


WHEREAS,
the Committee has determined that it would be in the best interests of the
Company and its stockholders to grant the Option provided for herein
to the Participant pursuant to the Plan and the terms set forth herein.


 


NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth, the
parties agree as follows:


 


1.                    Definitions. Whenever the
following terms are used in this Agreement, they shall have the meanings set
forth below.  Capitalized terms not
otherwise defined herein shall have the same meanings as in the Plan.


 


(a)                 “Cause” includes (and is not limited to) dishonesty with
respect to the Company or any Affiliate, insubordination, substantial
malfeasance or non-feasance of duty, unauthorized disclosure of confidential
information, and conduct substantially prejudicial to the business of the
Company or any Affiliate.  The
determination of the Committee as to the existence of “Cause” will be
conclusive on the Participant and the Company.


 


(b)                 “Disability” means, “Disability” as defined in an employment
agreement between the Company or any of its Subsidiaries and the Participant
or, if not defined therein or if there shall be no such agreement, “disability”
of the Participant shall have the meaning ascribed to such term in the Plan.


 


(c)                 “Expiration Date” means the date set forth on the Notice (as
defined below).


 


(d)                 “Good Reason” means (i) a breach by the Company or any
Affiliate of any employment or consulting agreement to which the Participant is
a party and (ii) following a Change in Control, (x) the failure of
the Company to pay or cause to be paid the Participant’s base salary or annual
bonus when due or (y) any substantial and sustained diminution in the
Participant’s authority or responsibilities materially inconsistent with the
Participant’s position; provided that either of the events described in clauses
(x) and (y) will constitute Good Reason only if the Company fails to
cure such event within 30 days after receipt from the Participant of written
notice of the event which constitutes Good Reason; provided, further, that “Good
Reason” will cease to exist for an event on the sixtieth (60th) day following
the later of its occurrence or the Participant’s  knowledge thereof, unless the Participant has
given the Company written notice of his or her termination of employment for
Good Reason prior to such date. 


 


(e)           “Plan” means the
Prospect Medical Holdings, Inc. 2008 Omnibus Equity Incentive Plan, as the
same may be amended, supplemented or modified from time to time.


 

















 


(f)                  “Retirement” means a termination of employment by the
Participant at Participant’s election (i) following the attainment of age
sixty-five (65) with ten (10) or more years of combined service with the
Company or any Affiliate or (ii) pursuant to a retirement plan or early
retirement program of the Company or any Affiliate in which the Participant
elects to participate.


 


(g)                 “Vested Portion” means, at any time, the portion of an Option
which has become vested, as described in Section 3 of this Agreement.


 


2.                    Grant of Option. The Company
hereby grants to the Participant the right and option (the “Option”) to purchase, on the terms and conditions
hereinafter set forth, the number of Shares set forth on the Notice of Grant of
Stock Option (the “Notice”),
subject to adjustment as set forth in the Plan. 
The purchase price of the Shares subject to the Option (the “Option Price”) shall be as set forth on the Notice.  The Option is intended to be an Incentive Stock
Option, and as such is intended to be treated as an option that complies with Section 422
of the Internal Revenue Code of 1986, as amended.


 


3.                    Vesting of the
Option.


 


(a)                 In General.  Subject to Sections 3(b) and 3(c), the
Option shall vest and become exercisable at such times as are set forth in the
Notice.


 


(b)                 Change in
Control. Notwithstanding the foregoing, in the event of a Change in Control,
the Committee, in its discretion, may elect to accelerate the vesting of any or
all unvested Options as of the date of such Change in Control, to the extent
not previously cancelled or forfeited, so that such unvested Options will
become vested and exercisable either (i) upon the earlier of (x) the
first anniversary of the Change in Control or (y) the termination of the
Participant’s Employment (A) by the Company other than for Cause (unless
such termination is due to death or Disability) or (B) by the Participant
for Good Reason, or (ii) on such other terms established by the Committee.


 


(c)                 Termination of
Employment.  If the
Participant’s Employment with the Company and its Subsidiaries terminates for
any reason (including, unless otherwise determined by the Committee, a
Participant’s change in status from an employee to a non-employee (other than
director of the Company or any Affiliate)), the Option, to the extent not then
vested, shall be immediately canceled by the Company without consideration;
provided, however, that if the Participant’s Employment terminates due to
death, Disability or Retirement, the unvested portion of the Option, to the
extent not previously cancelled or forfeited, shall immediately become vested
and exercisable.  The Vested Portion of
the Option shall remain exercisable for the period set forth in Section 4(a) of
this Agreement.  If the Participant is
absent from work with the Company or with an Affiliate because of a temporary
disability (any disability other than a Disability), or on an approved leave of
absence for any purpose, the Participant shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have terminated
Employment, except to the extent that the Committee so determines.


 


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4.                    Exercise of
Option.


 


(a)                 Period of
Exercise. Subject to the provisions of the Plan and this
Agreement, and the terms of any employment agreement entered into by the
Participant and the Company or an Affiliate that provides for treatment of
Options that is more favorable to the Participant than clauses (i) - (vii) of
this Section 4(a), the Participant may exercise all or any part of the
Vested Portion of the Option at any time prior to the Expiration Date.  Notwithstanding the foregoing, if the
Participant’s Employment terminates prior to the Expiration Date, the Vested
Portion of the Option shall remain exercisable for the period set forth
below.  If the last day on which the
Option may be exercised, whether the Expiration Date or due to a termination of
the Optionee’s Employment prior to the Expiration Date, is a Saturday, Sunday
or other day that is not a trading day on the American Stock Exchange (the “AMEX”) or, if the Company’s Shares are not then listed on
AMEX, such other stock exchange or trading system that is the primary exchange
on which the Company’s Shares are then traded, then the last day on which the
Option may be exercised shall be the preceding trading day on AMEX or such
other stock exchange or trading system. 
If the Shares are not publicly traded, the next business day (when U.S.
government offices and federal courts are open for business) following a
Saturday, Sunday or national holiday shall be the last day on which the Option
may be exercised.


 


(i)                   Death or
Disability. If the Participant’s Employment with the Company
or any Affiliate terminates due to the Participant’s death or Disability, the
Participant (or his or her representative) may exercise the Vested Portion of
the Option for a period ending on the earlier of (A) one hundred eighty
(180) days following the date of such termination and (B) the Expiration
Date;


 


(ii)                 Retirement. If the
Participant’s Employment with the Company or any Affiliate terminates due to
the Participant’s Retirement, the Participant may exercise the Vested Portion
of the Option for a period ending on the earlier of (A) ninety (90) days
following the date of such termination and (B) the Expiration Date;
provided, that if the Company or any Affiliate has given the Participant notice
that the Participant’s Employment is being terminated for Cause prior to the
Participant’s election to terminate due to the Participant’s Retirement, then
the provisions of Section 4(a)(v) shall control;


 


(iii)                Unsatisfactory
Performance; Voluntary Termination without Good Reason.
If the Participant’s Employment with the Company or any Affiliate is terminated
by the Company or the Affiliate (other than after a Change in Control as set
forth in Section 4(a)(vi)) for unsatisfactory performance, but not for
Cause (as determined in its sole discretion by the Company or the Affiliate),
or the Participant voluntarily terminates Employment at any time without Good
Reason, the Participant may exercise the Vested Portion of the Option for
a period ending on the earlier of (A) ninety (90) days following the date
of such termination and (B) the Expiration Date; provided, that if the
Company or any Affiliate has given the Participant notice that the Participant’s
Employment is being terminated for Cause prior to the Participant’s election to
voluntarily terminate Employment without Good Reason, then the provisions of Section 4(a)(v) shall
control;


 


(iv)               Termination
other than for Cause. Subject to the provision of Section 4(a)(vi),
if the Participant’s Employment with the Company or any Affiliate is terminated
by the 


 


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Company or the Affiliate for any reason other than by the Company or
the Affiliate for Cause, unsatisfactory performance or due to the Participant’s
death or Disability, the Participant may exercise the Vested  Portion of the Option for a period ending on
the earlier of (A) ninety (90) days following the date of such termination
and (B) the Expiration Date;


 


(v)                 Termination by
the Company for Cause. If the Participant’s Employment with the
Company or any Affiliate is terminated by the Company or the Affiliate for
Cause, the Vested Portion of the Option shall immediately terminate in full and
cease to be exercisable; and


 


(vi)               After a Change
in Control. If the Participant’s Employment with the Company
or any Affiliate terminates after a Change in Control due to a termination by
the Company other than for Cause or due to the Participant’s resignation for
Good Reason, the Participant may exercise the Vested Portion of the Option for
a period ending on the earlier of (A) ninety (90) days following the date
of such termination and (B) the Expiration Date.


 


(b)                 Method of
Exercise.


 


(i)                   Subject to Section 4(a) of
this Agreement, the Vested Portion of an Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
provided that the Option may be exercised with respect to whole Shares
only.  Such notice shall specify the
number of Shares for which the Option is being exercised, shall be signed
(whether or not in electronic form) by the person exercising the Option and
shall make provision for the payment of the Option Price.  Payment of the aggregate Option Price shall
be paid to the Company, at the election of the Committee, pursuant to one or
more of the following methods: (A) in cash, or its equivalent; (B) by
transferring Shares having a Fair Market Value equal to the aggregate Option
Price for the Shares being purchased to the Company and satisfying such other
requirements as may be imposed by the Committee; provided that such Shares have
been held by the Participant for no less than six (6) months (or such
other period as established from time to time by the Committee or generally
accepted accounting principles); (C) partly in cash and partly in Shares;
or (D) if there is a public market for the Shares at such time, subject to
such rules as may be established by the Committee, through delivery of
irrevocable  instructions to a broker to
sell the Shares otherwise deliverable upon the exercise of the Option and to
deliver promptly to the Company an amount equal to the aggregate Option
Price.  No Participant shall have any
rights to dividends or other rights of a stockholder with respect to the Shares
subject to the Option until the issuance of the Shares.


 


(ii)                 Notwithstanding
any other provision of the Plan or this Agreement to the contrary, absent an
available exemption to registration or qualification, the Option may not be
exercised prior to the completion of any registration or qualification of the
Option or the Shares under applicable state and federal securities or other
laws, or under any ruling or regulation of any governmental body or national
securities exchange that the Committee shall in its sole reasonable discretion
determine to be necessary or advisable.


 


(iii)                Upon the
Company’s determination that the Option has been validly exercised as to any of
the Shares, the Company shall issue certificates in the Participant’s name for
such Shares.  However, the Company shall
not be liable to the Participant for damages relating to any delays in issuing
the certificates to the Participant, any loss by the Participant of 


 


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the certificates, or any mistakes or errors in the issuance of the
certificates or in the certificates themselves.


 


(iv)               In the event of the
Participant’s death, the Vested Portion of an Option shall remain vested and
exercisable by the Participant’s executor or administrator, or the person or
persons to whom the Participant’s rights under this Agreement shall pass by
will or by the laws of descent and distribution as the case may be, to the
extent set forth in Section 4(a) of this Agreement.  Any heir or legatee of the Participant shall
take rights herein granted subject to the terms and conditions hereof.


 


(c)                                  Limitations and
Restrictions.


 


(i)                   If Participant
sells or otherwise disposes of any of the Shares acquired pursuant to the
Option on or before the later of: (1) the date two years after the Date of
Grant, and (2) the date one year after transfer of such Shares to
Participant upon exercise of the Option, Participant immediately shall notify
the Company in writing of such disposition. 
Participant agrees that Participant may be subject to income tax
withholding by the Company on the compensation income recognized by Participant
from the early disposition by payment in the manner set forth in paragraph 8.


 


(ii)                 The aggregate
Fair Market Value (determined as of the date of grant) of Shares with respect
to which the Option is exercisable for the first time by Participant during any
calendar year (under the Plan or under any other stock option plan of the
Company or any Affiliate) shall not exceed $100,000.  If the Fair Market Value of Shares on the
date of grant with respect to which the Option is exercisable for the first
time by Participant during any calendar year exceeds $100,000, only the Options
for the first $100,000 worth of Shares to become exercisable in such calendar
year shall comply with Section 422 of the Code and Options for the amount
in excess of $100,000 that become exercisable in that calendar year shall be
non-qualified stock options.  In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to incentive stock options, such different limit
shall be automatically incorporated herein and shall apply to the unexercised
portion of this Option after the effective date of such amendment, provided
such regulations are intended to apply to pre-existing options.


 


(iii)                Participant
understands and acknowledges that for purposes of this Agreement, Participant
must be an employee of the Company or an Affiliate.  Termination of Participant’s employment with
the Company or an Affiliate in order to provide service to the Company or an
Affiliate in any other capacity, such as a consultant or as an employee of a
consultant providing services to the Company or an Affiliate will not comply
with the requirements of Section 422 of the Code and will result in the
unexercised portion of the Option to be treated as a non-qualified stock
option.


 


5.                    No Right to
Continued Employment. Neither the Plan nor this Agreement shall be
construed as giving the Participant the right to be retained in the Employment of
the Company or any Affiliate.  Further,
the Company or an Affiliate may at any time dismiss the Participant or 


 


5

















 


discontinue any other relationship, free from any liability or any
claim under the Plan or this Agreement, except as otherwise expressly provided
herein.


 


6.                    Legend on
Certificates. The certificates representing the Shares purchased
by exercise of an Option shall be subject to such stop transfer orders and
other restrictions as the Committee may deem reasonably advisable under the
Plan or the rules, regulations, and other requirements of the Securities and
Exchange Commission, AMEX or any stock exchange upon which such Shares are
listed, any applicable federal or state laws and the Company’s Certificate of
Incorporation and Bylaws, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.


 


7.                    Transferability. Unless
otherwise determined by the Committee, an Option may not be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by
the Participant otherwise than by will or by the laws of descent and
distribution, and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and unenforceable
against the Company or any Affiliate.


 


8.                    Withholding. The
Participant may be required to pay to the Company or an Affiliate and the
Company or the Affiliate shall have the right and is hereby authorized to withhold
from any payment due or transfer made under the Option or under the Plan or
from any compensation or other amount owing to a Participant the amount (in
cash, Shares, other securities, other Awards or other property) of any
applicable withholding taxes in respect of the Option, its exercise, or any
payment or transfer under the Option or under the Plan and to take such action
as may be necessary in the option of the Company to satisfy all obligations for
the payment of such taxes.


 


9.                    Securities Laws. Upon the
acquisition of any Shares pursuant to the exercise of an Option, the
Participant will make or enter into such written representations, warranties
and agreements as the Committee may reasonably request in order to comply with
applicable securities laws or with this Agreement.


 


10.                 Notices. Any notice
under this Agreement shall be addressed to the Company in care of its Corporate
Secretary at the principal executive office of the Company, with a copy to the
Director, Human Resources, at the principal executive office of the Company,
and to the Participant at the address appearing in the personnel records of the
Company for the Participant or to either party at such other address as either
party hereto may hereafter designate in writing to the other.  Any such notice shall be deemed effective
upon receipt thereof by the addressee.


 


11.                 Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to conflicts of laws, and any and all
disputes between the Participant and the Company or any Affiliate relating to
the Option shall be brought only in a state or federal court of competent
jurisdiction sitting in Wilmington, Delaware and the Participant and the
Company and any Affiliate hereby irrevocably submit to the jurisdiction of any
such court and irrevocably agree that venue for any such action shall be only
in any such court.


 


12.                 Entire
Agreement. This Agreement, together with the Notice and the
Plan, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter 


 


6

















 


hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof.  No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement or the Notice
shall affect or be used to interpret, change or restrict, the express terms and
provisions of this Agreement or the Notice; provided, that this Agreement and
the Notice shall be subject to and governed by the Plan, and in the event of
any inconsistency between the provisions of this Agreement or the Notice and
the provisions of the Plan, the provisions of the Plan shall govern.


 


13.                 Modifications
And Amendments. The terms and provisions of this Agreement and the
Notice may be modified or amended as provided in the Plan.


 


14.                 Waivers And
Consents. Except as provided in the Plan, the terms and
provisions of this Agreement and the Notice may be waived, or consent for the
departure therefrom granted, only by a written document executed by the party
entitled to the benefits of such terms or provisions. 
No such waiver or consent shall be deemed to be or shall constitute a
waiver or consent with respect to any other terms or provisions of this
Agreement or the Notice, whether or not similar.  Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.


 


15.                 Reformation; Severability.
If any provision of this Agreement or the Notice (including any provision of
the Plan that is incorporated herein by reference) shall hereafter be held to
be invalid, unenforceable or illegal, in whole or in part, in any jurisdiction
under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties as expressed
in, and the benefits of the parties provided by, this Agreement, the Notice and
the Plan or (ii) if such provision cannot be so reformed, such provision
shall be severed from this Agreement or the Notice and an equitable adjustment
shall be made to this Agreement or the Notice (including, without limitation,
addition of necessary further provisions) so as to give effect to the intent as
so expressed and the benefits so provided. 
Such holding shall not affect or impair the validity, enforceability or
legality of such provision in any other jurisdiction or under any other
circumstances.  Neither such holding nor
such reformation or severance shall affect the legality, validity or
enforceability of any other provision of this Agreement, the Notice or the
Plan.


 


16.                 Receipt of
Documents. By entering into this Agreement, the Participant
agrees and acknowledges that (i) the Participant has received and read a
copy of the Plan and (ii) the Option is granted pursuant to the Plan and
is therefore subject to all of the terms of the Plan.


 


17.                 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
considered an original and shall become effective when one or more counterparts
have been signed by each of the parties hereto and delivered to the other party
hereto. Execution and delivery shall be deemed effective whether made via hard
copy with manual signatures or via email or fax transmission with facsimile
signatures.


 


(Signature Page Follows)


 


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IN WITNESS WHEREOF,
the parties hereto have executed this Agreement as of the 20th day of August,
2008 at Los Angeles, California.


 


 


	
  COMPANY

  
	
   

  	
   

  
	
  PROSPECT MEDICAL HOLDINGS, INC.

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
  Name: Samuel S. Lee

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  PARTICIPANT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
  Name:

  



 


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Prospect Medical Holdings, Inc.


2008 Omnibus Equity Incentive Plan


 


Notice of Grant of Incentive
Stock Option


 


PROSPECT MEDICAL HOLDINGS, INC. (the “Company”),
pursuant to action of the Compensation Committee of the Board of Directors of
the Company taken on August 20, 2008, granted (the “Award”)
to the undersigned Participant the following Stock Option (the “Option”) to purchase Shares, subject to the terms and
conditions of this Notice of Grant of Incentive Stock Option (the “Notice”), the Incentive Stock Option Agreement (the “ISO Agreement”) and the Company’s 2008 Omnibus Equity
Incentive Plan (the “Plan”). The
Plan and the ISO Agreement are both incorporated into and made a part of this
Notice.


 


	
  1.

  	
  Participant’s
  Name:

  
	
   

  	
   

  
	
  2.

  	
  Grant
  Information for this Award:

  
	
   

  	
  Option Grant
  Number:

  
	
   

  	
  Date of
  Grant:
                                ,
  20

  
	
   

  	
  Exercise
  Price per Share:

  
	
   

  	
  Total Number
  of Shares Subject to Option:

  
	
   

  	
  Option
  Expiration Date:
                                  ,
  20

  
	
   

  	
   

  
	
  3.

  	
  The vesting
  dates shall be:

  



 


	
  Shares

  	
   

  	
  Vesting Date

  	
   

  	
  Performance Vesting (Yes/No)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


	
   

  	
  subject to earlier forfeiture in certain circumstances, including
  termination of Employment, and accelerated vesting, as provided in the ISO
  Agreement and the Plan. If Performance Vesting terms apply, they will be set
  forth in Attachment A to this Notice and the ISO Agreement.

  
	
   

  	
   

  
	
  4.

  	
  I
  acknowledge that I have read and will comply with the Company’s Insider
  Trading Policy (accessible on the Company’s Website), which I understand may
  be updated from time to time.

  
	
   

  	
   

  
	
  5.

  	
  I
  acknowledge and agree that I may owe withholding taxes at the time of each
  exercise of a vested portion of the Option and that I must determine if I
  will owe withholding taxes and, if so, elect the method of payment of such
  withholding taxes in advance of each exercise in accordance with the
  procedures established by the Company, and that such procedures may change
  and be updated over time.

  



 

















 


IN WITNESS WHEREOF, the Company has caused this Notice to be signed by
its duly authorized officer or agent as of the
         day of
                        ,
          .


 


	
  Prospect Medical Holdings, Inc.

  
	
   

  	
   

  
	
  By:

  	
   

  



 


	
  Accepted and Agreed to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Participant:

  	
   

  	
   

  	
   

  
	
                         (Signature)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Home Address:

  	
   

  	
  Business Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				



 


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