Exhibit 10.72


 


FIFTH
AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT


 


THIS FIFTH AMENDED AND RESTATED ASSIGNABLE
OPTION AGREEMENT (this “Agreement”)
is effective as of the 26th day of November, 2008, by and among
Prospect Medical Systems, Inc., a Delaware corporation (“PMS”), Prospect Medical Group, Inc.,
a California professional corporation (“PMG”),
and Arthur Lipper, 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.                                     Simultaneous
with the execution of this Agreement, Shareholder has acquired all of the
issued and outstanding shares of PMG from PMG’s previous shareholder, Osmundo
R. Saguil, M.D. (“Prior Shareholder”)


 


C.                                     Prior
Shareholder was a party to that Fourth Amended and Restated Assignable Option
Agreement effective August 8, 2008 with PMS and PMG (the “Prior Assignable Option Agreement”);


 


D.                                    The
Prior Assignable Option Agreement granted to PMS and PMS acquired from PMG and
Prior 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.


 


E.                                      A
condition of the purchase of all the issued and outstanding stock of PMG was
Shareholder’s simultaneous execution of this Agreement which amends and
restates the Prior Assignable Option Agreement.


 


F.                                      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.


 


G.                                     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
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 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 (a) the First Lien Pledge Agreement dated as of November     ,
2008 by and among Shareholder, PMG, PMS, Prospect Medical Holdings, a Delaware
corporation (“Holdings”)
and Bank of America, N.A., as Administrative Agent and (b) the Second Lien
Pledge Agreement dated as of November     , 2008 by
and among Shareholder, PMG, PMS, Holdings and Bank of America, N.A., as
Administrative Agent (collectively, the “Pledge
Agreements”), 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 to PMG,
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”),
Nuestra Familia Medical Group, Inc., a California professional corporation
(“Nuestra”) or Santa
Ana/Tustin Physicians Group, Inc., a California professional corporation (“Santa Ana/Tustin”), PMS and (ii) with
respect to Pomona Valley Medical Group, Inc., a California professional
corporation (“Pomona Valley”)
and Upland Medical Group, A Professional Medical Corporation, a California
professional corporation, ProMed Health Care Administrators, a California
corporation (“PHCA”).


 


PMS and PHCA are 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, Santa Ana/Tustin, Nuestra, Prospect Health,
Prospect Professional, 


 


2

















 


Prospect NWOC, APAC, StarCare, Genesis, Prospect Physician, Pomona
Valley, and Upland are each a “Professional
Corporation” and collectively, the “Professional Corporations”).


 


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. Subject to applicable Law:


 


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.


 


3

















 


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, including without limitation, the
Non-Solicitation 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 plus an assumption of all
liabilities and obligations of PMG, whether contingent, liquidated or disputed
(“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 fifteen (15) 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:


 


4

















 


(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 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;


 


5

















 


(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;


 


(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 Pledge Agreements are no longer in effect.


 


7.2                                 Negative
Covenants. Except as required under the Pledge Agreements or under the
First Lien Credit Agreement, dated as of August 8, 2007 (as amended,
supplemented, restated or modified from time to time, the “First Lien Credit Agreement”), among
Holdings, PMG, Bank of America, N.A., as First Lien Administrative Agent, and
the Lenders party thereto, and the Second Lien Credit Agreement, dated as of August 8,
2007 (as amended, supplemented, restated or modified from time to time, the “Second Lien Credit Agreement” and
together with the First Lien Credit Agreement, the “Credit Agreements”) among
Holdings, PMG, Bank of America, N.A., as Second Lien Administrative Agent, and
the Lenders party thereto, and the other loan documents executed in connection
with the Credit Agreements, without the prior written consent of PMS or the
Applicable Management Companies, PMG and Shareholder shall not (and shall not
permit any other Professional Corporation or Successor Physician 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. Except as contemplated by the Credit Agreements and
related loan documents, 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;


 


6

















 


(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, 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;
Subordination.


 


8.1                                 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.


 


8.2                                 Subordination.
Notwithstanding anything herein to the contrary, each of PMG, PMS and Holdings
hereby subordinates all of its rights under this Agreement to the rights of the
First Lien Administrative Agent and the Second Lien Administrative Agent under
the Pledge Agreements until the indefeasible payment in full in cash of all
Obligations (as such term is defined in each of the respective Credit
Agreements) and termination of all commitments to lend under the First Lien
Credit Agreement.


 


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 Holdings, including but not limited to an assignment to
Bank of America, N.A., in its capacity as Administrative Agent and/or Control
Agent under the Credit 


 


7

















 


Agreements (subject to the
terms of the Intercreditor Agreement as such term is defined in the Credit
Agreements); 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 and the Pledge
Agreements 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 in its entirety. The parties hereto acknowledge and
agree that the rights and obligations under the Prior Assignable Option
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 PMG


	
  Or Shareholder:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to PMS:

  	
   

  	
  c/o Prospect Medical Holdings, Inc.

  
	
   

  	
   

  	
  10780 Santa Monica Boulevard,
  Suite 400

  
	
   

  	
   

  	
  Los Angeles, California 90025

  
	
   

  	
   

  	
  Attention: Samuel S. Lee, Chief Executive
  Officer

  



 


8

















 


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 PMS, PMG and
Shareholder, provided that any amendment shall be in writing and executed by
PMS, PMG and Shareholder.


 


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 Shareholder 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.


 


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.


 


9

















 


(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 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

















 


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

  	
   

  	
  PROSPECT MEDICAL GROUP, INC.,
  a

  California professional corporation

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Samuel S. Lee

  	
   

  	
  By:

  	
   

  	
  /s/ Arthur Lipper, M.D.

  
	
  Name:

  	
  Samuel S. Lee

  	
   

  	
  Name:

  	
  Arthur Lipper, M.D.

  
	
  Title:

  	
  Chairman of the Board

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “SHAREHOLDER”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTHUR LIPPER, M.D.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/ Arthur Lipper, M.D.

  
	
   

  	
   

  	
  Arthur Lipper, M.D., individually

  
								



 


Acknowledged and Agreed:


 


The undersigned acknowledges and agrees that after the date hereof
references to “Shareholder” under this Agreement shall refer solely to Dr. Lipper
and that the undersigned is no longer a party to this Agreement.


 


 




	
   

  	
  /s/ Osmundo R. Saguil, M.D.

  	
   

  	
   

  
	
  Osmundo R. Saguil, M.D.

  	
   

  	
   

  






 


11














 


SPOUSAL
JOINDER AND CONSENT


 


I am the spouse of Arthur Lipper, 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 Fifth 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
relying on the validity and accuracy of this Spousal Joinder and Consent in
entering into the Assignable Option Agreement.


 


Executed this 23rd day of November, 2008.


 


 


	
  Signature:

  	
   

  	
  /s/ Allyson Lipper

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Printed or Typed Name: 

  	
   

  	
  Allyson Lipper

  	
   

  	
   

  
							



 


12

















 


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.


 


13

















 


EXHIBIT
B


 


STOCK


 


4,000 shares of common stock of Prospect
Medical Group, Inc., a California professional corporation (“PMG”)
representing 100% of the outstanding shares of PMG. All of the foregoing stock
of PMG has been pledged to the First Lien Administrative Agent pursuant to the
terms of that certain First Lien Pledge Agreement, dated as of November     ,
2008 executed in favor of the First Lien Administrative Agent by Arthur Lipper,
M.D., as the same may be amended, supplemented, restated or otherwise modified
from time to time, and to the Second Lien Administrative Agent pursuant to the
terms of that certain Second Lien Pledge Agreement, dated as of November     ,
2008 created in favor of the Second Lien Administrative Agent by Arthur Lipper,
M.D., as the same may be amended, supplemented, restated or otherwise modified
from time to time.


 


14

















 


EXHIBIT
C


 


NON-SOLICITATION
AGREEMENT


 


THIS NON-SOLICITATION 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”), Arthur
Lipper, 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.                                     Systems has
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
                          ,
2008 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) 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.


 


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 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:

  	
   

  	
  Arthur Lipper, 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.]


 

















 


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:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Samuel S. Lee

  	
   

  	
   

  
	
  Title:

  	
  Chairman of the Board

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “PC”

  	
   

  	
   

  
	
  PROSPECT MEDICAL GROUP, INC.,

  	
   

  	
   

  
	
  a California professional corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Samuel S. Lee

  	
   

  	
   

  
	
  Title:

  	
  Senior Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “PROFESSIONAL”

  	
   

  	
   

  
	
  ARTHUR LIPPER, M.D.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Arthur Lipper, M.D., as an individual and
  seller of all the shares of PC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “SUCCESSOR PHYSICIAN”