Exhibit 10.71


 


FOURTH AMENDED AND RESTATED ASSIGNABLE OPTION
AGREEMENT


 


THIS FOURTH AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT (this “Agreement”) is effective as of the 8th
day of August, 2008, by and among Prospect Medical Systems, Inc., a
Delaware corporation (“PMS”),
Prospect Medical Group, Inc., a California professional corporation (“PMG”), and Osmundo R. Saguil, 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, Jacob Y. Terner,
M.D. (“Prior Shareholder”)


 


C.                                     Prior Shareholder
was a party to that Third Amended and Restated Assignable Option Agreement
effective August 8, 2007 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 August 8, 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 August 8, 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 (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, SMM 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, Sierra Primary, Santa Ana/Tustin, Pegasus,
Antelope, Nuestra, Prospect Health, Prospect Professional, Prospect NWOC, APAC,
StarCare, Genesis, Prospect Physician, 


 


2

















 


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:                                                                                                           c/o
Prospect Medical Group, Inc.


1920 East 17th Street, Suite 200


Santa Ana, California


Attention: Osmundo R. Saguil, M.D.


 


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 


 


9

















 


of execution to enforce the arbitrator’s
judgment. Judgment may be entered upon such a decision in accordance with
applicable law in any court having jurisdiction thereof.


 


(e)                                  Notwithstanding the foregoing, because
time is of the essence of this Agreement, the parties specifically reserve the
right to seek a judicial temporary restraining order, preliminary injunction,
or other similar short term equitable relief, and grant the arbitrator the
right to make a final determination of the parties’ rights, including whether
to make permanent or dissolve such court order.


 


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


 


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


 


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


 


	
  “PMS”

  	
  “PMG”

  
	
   

  	
   

  
	
  PROSPECT MEDICAL SYSTEMS, INC., a
  

  	
  PROSPECT MEDICAL GROUP, INC.,
  a 

  
	
  Delaware corporation 

  	
  California professional corporation 

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Samuel S. Lee 

  	
   

  	
  By:

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

  
	
  Name:

  	
   

  	
  Samuel S. Lee 

  	
   

  	
  Name:

  	
   

  	
  Osmundo R. Saguil, M.D. 

  
	
  Title:

  	
   

  	
  Chairman of the Board

  	
   

  	
  Title:

  	
      Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  “SHAREHOLDER”

  
	
   

  	
   

  
	
   

  	
  OSMUNDO R. SAGUIL

  
	
   

  	
   

  
	
   

  	
   

  
	
   

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

  
	
   

  	
  Osmundo R. Saguil, 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. Saguil
and that the undersigned is no longer a party to this Agreement.


 


 


	
  /s/ Jacob Y. Terner, M.D.

  	
   

  
	
  Jacob Y. Terner, M.D.

  	
   

  



 


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SPOUSAL JOINDER AND CONSENT


 


I am the spouse of Osmundo R. Saguil, 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 Fourth 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          day of August     ,
2008.


 


 


	
  Signature:

  	
   

  	
   

  
	
   

  
	
  Printed or Typed Name:

  	
   

  	
   

  
					



 


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
                            ,
2008 executed in favor of the First Lien Administrative Agent by Osmundo R.
Saguil, 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
                              ,
2008 created in favor of the Second Lien Administrative Agent by Osmundo R.
Saguil, 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”), Osmundo
R. Saguil, M.D. (“Professional”), and
                                  
(“Successor Physician”).


 


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


 


RECITALS


 


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


 


B.            On                      ,
      , Systems exercised its Option to designate
Successor Physician to acquire the stock or assets of PC under the terms of
that certain Assignable Option Agreement, dated
                          ,
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:

  	
   

  	
  Osmundo R. Saguil, 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:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Osmundo R. Saguil, M.D.

  	
   

  	
   

  
	
  Title:

  	
  Sole Shareholder

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “PROFESSIONAL”

  	
   

  	
   

  
	
  OSMUNDO R. SAGUIL, M.D.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Osmundo R. Saguil, M.D., as an individual

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “SUCCESSOR PHYSICIAN”