Exhibit 10.1


 


THE
WARRANTS AND WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE WARRANTS AND THE WARRANT SHARES MAY NOT BE
EXERCISED, CONVERTED, OFFERED OR SOLD UNLESS THERE IS A REGISTRATION STATEMENT
IN EFFECT COVERING THE WARRANTS AND WARRANT SHARES OR THERE IS AVAILABLE AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


 


Void after 5:00 p.m. New York Time, on September 19, 2010.

Warrant to Purchase 659,409 Shares of Common Stock.


 


 


WARRANT TO ACQUIRE COMMON STOCK

OF

PROSPECT MEDICAL HOLDINGS, INC.


 


 


This is to certify that, FOR
VALUE RECEIVED, Spencer Trask Venture Investment Partners, LLC or its assigns
(“Holder”), is entitled to acquire, subject to the provisions of this Warrant,
from Prospect Medical Holdings, Inc., a Delaware corporation (“Company”),
659,409 shares of Common Stock, $0.01 par value, of the Company (“Common
Stock”) at a price of $1.00 per share at any time during the period from
September 19, 2003 (the “Initial Exercise Date”) to September 19, 2010, but not
later than 5:00 p.m., New York Time, on the Expiration Date.  The number of shares of Common Stock to be
received upon the exercise and/or conversion of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth.  The shares of
Common Stock deliverable upon such exercise and/or conversion and as adjusted
from time to time are hereinafter sometimes referred to as “Warrant Shares” and
the exercise price of each share of Common Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the
“Exercise Price.”


 


(a)           EXERCISE OF WARRANT. 
Subject to the provisions of Section (k) hereof, this Warrant may be
exercised in whole or in part at any time or from time to time on or after the
Initial Exercise Date and until the Expiration Date, or if any such day is a
day on which banking institutions in the State of New York are authorized by
law to close, then on the next succeeding day which shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form.  If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase the balance
of the Warrant Shares purchasable thereunder. 
Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its


 

















 


office, in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder.  The exercise of this Warrant in part only
shall not restrict the ability of Holder to convert this Warrant pursuant to
Section (b) below as to any part not exercised.


 


(b)           CONVERSION OF WARRANT.  Subject
to the provisions of Section (k) hereof, the Holder shall have the right to
convert this Warrant, at any time or from time to time on or after the Initial
Exercise Date and until the Expiration Date, or if any such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day, by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Conversion Form
annexed hereto duly executed, for the number of Warrant Shares specified in
such form as calculated in accordance with this Section (b).  Upon exercise of this conversion right, the
Holder shall be entitled to receive that number of Warrant Shares equal to the
quotient obtained by dividing {(A-B)(X)} by {A}, where:


 


	
  A

  	
   

  	
  =

  	
   

  	
  the
  current market value (as defined in Section (d) below) of one Warrant Share
  on the date of conversion of this Warrant.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B

  	
   

  	
  =

  	
   

  	
  the
  Exercise Price under this Warrant.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  X

  	
   

  	
  =

  	
   

  	
  the
  number of Warrant Shares.

  



 


No
Warrant Shares shall be issued or issuable upon conversion of this Warrant at
any time when B is equal to or greater than A.


 


If
this Warrant should be converted in part only, the Company shall, upon
surrender of this Warrant for conversion, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase and/or convert the
balance of the Warrant Shares purchasable thereunder.  Upon receipt by the Company of this Warrant at its office, or by
the stock transfer agent of the Company at its office, in proper form for
conversion, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such conversion, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing
such shares of Common Stock shall not then be actually delivered to the
Holder.  The conversion of this Warrant
in part only shall not restrict the ability of Holder to exercise this Warrant
pursuant to Section (a) above as to any part not converted.


 


(c)           RESERVATION OF SHARES.  The
Company hereby agrees that at all times there shall be reserved for issuance
and/or delivery upon exercise and/or conversion of this Warrant such number of
shares of its Common Stock as shall be required for issuance and delivery upon
exercise and/or conversion of this Warrant.


 

















 


(d)           FRACTIONAL SHARES.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise and/or conversion of this Warrant.  With respect to any fraction of a share called for upon any
exercise and/or conversion hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
a share, determined as follows:


 


(1)           If
the Common Stock is listed on a National Securities Exchange or admitted to
unlisted trading privileges on such exchange or listed for trading on the
NASDAQ system, the current market value shall be the last reported sale price
of the Common Stock on such exchange or system on the last business day prior
to the date of exercise and/or conversion of this Warrant or if no such sale is
made on such day, the average closing bid and asked prices for such day on such
exchange or system; or


 


(2)           If
the Common Stock is not so listed or admitted to unlisted trading privileges,
the current market value shall be the mean of the last reported bid and asked
prices reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise and/or conversion of this Warrant; or


 


(3)           If
the Common Stock is not so listed or admitted to unlisted trading privileges
and bid and asked prices are not so reported, the current market value shall be
an amount not less than the book value thereof at the end of the most recent
fiscal year of the Company ending prior to the date of the exercise and/or
conversion of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.


 


(e)           EXCHANGE, TRANSFER,
ASSIGNMENT OR LOSS OF WARRANT.  This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof to
the Company or at the office of its stock transfer agent, if any, for other warrants
of different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.  This Warrant is transferable and may be
assigned or hypothecated from the date hereof. 
Subject to the provisions of Section (k), upon surrender of this Warrant
to the Company at its principal office or at the office of its stock transfer
agent, if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled.  This Warrant may be divided or combined with
other warrants which carry the same rights upon presentation hereof at the
principal office of the Company or at the office of its stock transfer agent,
if any, together with a written notice specifying the names and denominations
in which new Warrants are to be issued and signed by the Holder hereof.  The term “Warrant” as used herein includes
any Warrants into which this Warrant may be divided or exchanged.  Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and in the case of loss, theft or destruction, of reasonably
satisfactory indemnification and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date.  Any such new
Warrant executed and delivered shall constitute an additional contractual


 

















 


obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be
at any time enforceable by anyone.


 


(f)            RIGHTS OF THE HOLDER.  The
Holder shall not, by virtue hereof, be entitled to any rights of a shareholder
in the Company, either at law or equity, and the rights of the Holder are
limited to those expressed in the Warrant and are not enforceable against the
Company except to the extent set forth herein. 
Furthermore, Holder by acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant, including,
without limitation, all the obligations imposed upon the holder hereof by
Section (k).  In addition, the holder of
this Warrant, by accepting the same, agrees that the Company and the transfer
agent may deem and treat the person in whose name this Warrant is registered as
the absolute, true and lawful owner for all purposes whatsoever, and neither
the Company nor the transfer agent shall be affected by any notice to the
contrary.


 


(g)           ANTI-DILUTION PROVISIONS.  The Exercise Price and the number and kind
of securities purchasable upon the exercise of this Warrant (the “Warrant
Shares”) shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. 
The Exercise Price in effect at any time and the Warrant Shares shall be
subject to adjustment as follows:


 


(1)           In case the Company shall (i) pay a dividend
or make a distribution on its shares of Common Stock in shares of Common Stock,
(ii) subdivide or reclassify its outstanding Common Stock in shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding Common Stock into a smaller number of shares, then the Exercise
Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that such Exercise Price shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to such record date or effective date by a fraction, the numerator of which is
the number of shares of Common Stock outstanding on such record date or effective
date, and the denominator of which is the number of shares of Common stock
outstanding immediately after such dividend, distribution, subdivision,
combination or reclassification.  For
example, if the Company declares a 2 for 1 stock dividend or stock split and
the Exercise Price immediately prior to such event was $8.00 per share, the
adjusted Exercise Price immediately after such event would be $4.00 per share.


 


Such adjustment shall be made successively whenever any event listed in
this Subsection (1) shall occur.


 


(2)           In case the Company shall hereafter issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less
than the Exercise Price on the record date mentioned below, then the Exercise
Price shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the record date
mentioned below by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on the record date mentioned below
and the number of additional


 

















 


shares of Common Stock which the aggregate offering price of the total
number of shares of Common Stock so offered (or the aggregate conversion price
of the convertible securities so offered) would purchase at such Exercise
Price, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional
shares of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible).  Such adjustment shall be made successively whenever such rights
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants; and to the extent that shares of Common Stock are not delivered (or
securities convertible into Common Stock are not delivered) after the
expiration of such rights or warrants the Exercise Price shall be readjusted to
the Exercise Price which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the basis of delivery of
only the number of shares of Common Stock (or securities convertible into
Common Stock) actually delivered.


 


(3)           In
case the Company shall hereafter declare any dividend outside the ordinary
course of business (“extraordinary dividend”) to all holders of its Common
Stock (excluding those referred to in Subsections (1) or (2) above), then in
each such case the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Subsection (8) below), less the aggregate fair market
value (as determined in good faith by the Company’s Board of Directors and
reasonably acceptable to the Holder) of said extraordinary dividend, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common Stock.


 


Such adjustment shall be made successively
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.


 


(4)           In case the Company shall issue shares of
its Common Stock (excluding shares issued (i) in any of the transactions
described in Subsection (1) above, (ii) upon exercise or conversion of options
or other equity securities granted to the Company’s employees under a plan or
plans adopted by the Company’s Board of Directors and approved by its
stockholders (if required), if such shares would otherwise be included in this
Subsection (4), (iii) upon exercise of convertible securities outstanding at
the date hereof, this Warrant, or any convertible securities issued subsequent
to the date hereof which are convertible into Common Stock at an exercise price
equal or greater to the Exercise Price as of the date upon which the conversion
or exercise price for such securities is fixed (notwithstanding any subsequent
adjustment of such exercise price as may be provided under the terms of such
convertible security), (iv) upon the exercise of any convertible security as to
which the Exercise Price has already been adjusted pursuant to Subsection (5)
below, and (v) to stockholders of any corporation which merges into the Company
in proportion to their stock holdings of such corporation immediately prior to
such merger, upon such merger, but only if no adjustment is required pursuant
to any other specific subsection of this Section (g) (without regard to


 

















 


Subsection (9) below) with respect to the transaction giving rise to
such rights) for a consideration per share less than the Exercise Price, then
on the date the Company fixes the offering price of such additional shares, the
Exercise Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in Subsection (7)
below) for the issuance of such additional shares would purchase at such
Exercise Price, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares.


 


Such adjustment shall be made successively whenever such an issuance is
made.


 


(5)           In case the Company shall issue any
securities convertible into or exchangeable for its Common Stock (excluding
securities issued in transactions described in Subsections (2) and (3) above)
for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities (determined as provided in Subsection
(7) below) less than the Exercise Price in effect as of the date upon which the
conversion or exercise price for such securities is fixed, then the Exercise
Price shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the aggregate
consideration received determined as provided in Subsection (7) below for such
securities would purchase at such Exercise Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance and the maximum number of shares of Common
Stock of the Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate.


 


Such adjustment shall be made successively whenever such an issuance is
made.


 


(6)           Whenever the Exercise Price payable upon
exercise of each Warrant is adjusted pursuant to Subsections (1), (2), (3), (4)
and (5) above, the number of Warrant Shares purchasable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment by the Exercise Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Exercise Price, as adjusted.


 


(7)           For purposes of any computation respecting
consideration received pursuant to Subsections (4) and (5) above, the following
shall apply:


 


(A)          in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith:


 

















 


(B)           in the case of the issuance of shares of
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof) and reasonably acceptable to
the Holder; and


 


(C)           in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration
received by the Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be determined
in the same manner as provided in clauses (A) and (B) of this Subsection (7)).


 


(8)           For the purpose of any computation under
Subsections (2), (3), (4) and (5) above, the current market price per share of
Common Stock at any date shall be deemed to be the average of the daily closing
prices for 30 consecutive business days before such date.  The closing price for each day shall be the
last sale price regular way or, in case no such reported sale takes place on
such day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the last reported bid and asked prices as
reported by Nasdaq, or other similar organization if Nasdaq is no longer reporting
such information, of if not so available, the fair market price as determined
in good faith by the Board of Directors and reasonably acceptable to the
Holder.


 


(9)           No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such price; provided, however, that any adjustments
which by reason of this Subsection (9) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment required to
be made hereunder.  All calculations
under this Section (g) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. 
Anything in this Section (g) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to reduce the Exercise
Price, in addition to those changes required by this Section (g), as it, in its
sole discretion, shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of Common Stock, issuance of warrants to purchase Common Stock or
distribution or evidences of indebtedness or other assets (excluding cash
dividends) referred to hereinabove in this Section (g) hereafter made by the
Company to the holders of its Common Stock shall not result in any tax to such
holders of its Common Stock or securities convertible into Common Stock.


 


(10)         In the event that at any time, as a result of
an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable
upon exercise of this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as


 

















 


practicable to the provisions with respect to the Common Stock
contained in Subsections (1) to (9), inclusive above. The Company may retain a
firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by Section (g), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment absent
manifest error or negligence.


 


(11)         Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable upon exercise of
this Warrant, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in this Warrant.


 


(h)           OFFICER’S CERTIFICATE. 
Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Section, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer’s certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment.  Each such officer’s certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Sections (a) or (b)
and the Company shall, forthwith after each such adjustment, mail a copy by
certified mail of such certificate to the Holder or any such holder.


 


(i)            NOTICES TO WARRANT HOLDERS.  So
long as this Warrant shall be outstanding, (i) if Company shall pay any
dividend or make any distribution upon the Common Stock or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any share of another class of capital stock or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease, or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least fifteen days prior the date specified in
(x) or (y) below, as the case may be, a notice containing a brief description
of the proposed action and stating the date on which (x) a record is to be
taken for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.


 


(j)            RECLASSIFICATION,
REORGANIZATION OR MERGER.  In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
Company, or in case of any consolidation or merger of the Company with or into
another entity (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of


 

















 


outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease, or
conveyance to another corporation of all or substantially all of the property
of the Company as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the Holder
shall have the right thereafter by exercising this Warrant at any time prior to
the expiration of the Warrant, to purchase the kind and amount of shares of
stock and other securities and property receivable upon such reclassification,
capital reorganization and other change, consolidation, merger, sale, lease or
conveyance by a holder of the number of shares of Common Stock which might have
been purchased upon exercise of this Warrant immediately prior to such
reclassification, reorganization, change, consolidation, merger, sale, lease or
conveyance.  Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant.  The foregoing provisions of this Section (j)
shall similarly apply to successive reclassifications, capital reorganizations,
and changes of shares of Common Stock and to successive consolidations,
mergers, sales, leases or conveyances. 
In the event that in connection with any such capital reorganization or
reclassification, change, consolidation, merger, sale, lease or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution, or payment, in whole or in part, for a security of the Company
other than Common Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of Subsection (1) of Section (g) hereof.


 


(k)           EXERCISE AND TRANSFER TO
COMPLY WITH THE SECURITIES ACT OF 1933.  The holder of this Warrant and
any transferee hereof, by their acceptance hereof, hereby agree that:  (a) the Warrants being acquired hereunder
are being purchased for investment purposes only and not with a view to
distribution and will not be transferred without the prior written consent of
the Company and unless registered or unless there is an exemption available
from the registration requirements of the Securities Act of 1933, as amended
(“Securities Act”), which exemption has been established to the satisfaction of
the Company; (b) no public distribution of the Warrants or Warrant shares will
be made in violation of the provisions of the Securities Act, or the rules and
regulations promulgated thereunder (such Act and rules and regulations being
hereinafter referred to as the “Act”) or any applicable state laws; and (c) during
such period as delivery of a prospectus with respect to the Warrants or Warrant
shares may be required by the Act, no public distribution of the Warrants or
Warrant shares will be made in a manner or on terms different from those set
forth in, or without delivery of, a prospectus then meeting the requirements of
Section 10 of the Act and in compliance with all applicable state laws.  The holder of this Warrant and any such
transferee hereof further agree that if any distribution of any of the Warrants
or Warrant shares is proposed to be made by them otherwise than by delivery of
a prospectus meeting the requirements of Section 10 of the Act, such action
shall be taken only after submission to the Company of an opinion of counsel,
reasonably satisfactory in form and substance to the Company’s counsel, to the
effect that the proposed distribution will not be in violation of the Act or of
applicable state law.  Furthermore, it
shall be a condition to the transfer of the Warrants or Warrant shares thereof
to deliver to the Company his or its written agreement to accept and be bound
by all of the terms and conditions of this Warrant.  Lastly, by accepting this Warrant, and by exercising this
Warrant, the Holder represents and warrants as follows:


 

















 


(1)           The
Holder agrees not to offer, sell, transfer or otherwise dispose of any Common
Stock obtained on exercise of the Warrant, except under circumstances that will
not result in a violation of the Act, or any state securities laws, and agrees
that the following legend may be affixed to the stock certificate for the
Common Stock hereby subscribed for if resale of such Common Stock is not
registered or if Rule 144 is unavailable for the immediate resale of such
shares:


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES.  THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THESE LAWS.


 


(2)           The
Holder represents and warrants to the Company that it is a sophisticated
investor having such knowledge and experience in business and investment
matters that the Holder is capable of protecting its own interests in
connection with the exercise of the Warrant. The Holder is an “accredited
investor” within the meaning of Regulation D promulgated under the Securities
Act. The Holder acknowledges that the shares to be issued upon exercise of
the Warrant are being acquired solely for the Holder’s own account and not as a
nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of the shares to be issued upon
exercise of the Warrant except under circumstances that will not result in a
violation of the Act or any state securities laws.


 


(l)            GOVERNING LAW. 
This Warrant is made with reference to the laws of the State of
California and shall be governed by and construed in accordance therewith.


 


(m)          ARBITRATION.  Any
controversy or claim arising out of or relating to this Warrant or breach
thereof, including without limitation claims against either party, its
affiliates employees, professionals, officers or directors and their respective
assigns and agents shall be settled by binding arbitration in Los Angeles,
California in accordance with the Commercial Rules of the American Arbitration
Association.  The arbitrator shall be an
active member of the California bar.  In
the proceeding, the arbitrator shall apply California substantive law and the
California Evidence Code, except that the arbitrator’s authority in awarding
damages shall be interpreted under New York law.  Holder agrees that the
arbitrator shall have no authority to award punitive damages, and Holder has
been advised to seek counsel concerning the possible waiver by Holder of
certain rights otherwise available to Holder as a consequence of such
agreement.  The arbitrator
shall prepare an award in writing, which shall include factual findings and any
legal conclusions on which the decision is based.  Judgment upon any award rendered by the Arbitrator(s) may be
entered in any court having jurisdiction thereof.  In any such proceeding, the prevailing party shall be entitled,
in addition to any other relief awarded or adjudged, such sum as the


 

















 


Arbitrator(s) may fix as and for reasonable
attorneys’ fees and costs, and the same shall be included in the award and any
judgment.


 


	
   

  	
  PROSPECT
  MEDICAL HOLDINGS, INC.

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ R.
  Stewart Kahn

  	
   

  
	
   

  	
   

  	
  R.
  Stewart Kahn, Executive Vice President

  
	
   

  
	
   

  
	
  Dated:  September 19, 2003

  



 

















 


EXERCISE FORM


 


Dated: 
                                        


 


The
undersigned irrevocably elects to exercise the within Warrant to the extent of
purchasing
                            
shares of Common Stock and hereby makes payment of
                            
in payment of the actual exercise price thereof.


 


 


INSTRUCTIONS FOR REGISTRATION OF STOCK


 


	
  Name

  	
   

  	
   

  
	
   

  	
  (Please
  typewrite or print in block letters)

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  	
   

  
	
   

  	
   

  
	
  Signature

  	
   

  	
   

  
					



 


 


IT SHALL BE A CONDITION TO THE VALIDITY OF THIS ASSIGNMENT
THAT THE TRANSFEREE DELIVER TO PROSPECT MEDICAL HOLDINGS, INC. HIS OR ITS
WRITTEN AGREEMENT TO ACCEPT AND BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF
THIS WARRANT


 

















 


ASSIGNMENT FORM


 


FOR VALUE RECEIVED,
                                                        
hereby sells, assigns and transfers unto


 


	
  Name

  	
   

  	
   

  
	
   

  	
  (Please
  typewrite or print in block letters)

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  	
   

  
				



 


the
right to purchase Common Stock represented by this Warrant to the extent of
                 
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint
                                                    
Attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.


 


 


	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature

  	
   

  	
   

  
				



 

















 


NOTICE OF CONVERSION


 


Dated:


 


The
undersigned irrevocably elects to convert the within Warrant into
                  
shares of Common Stock of Prospect Medical Holdings, Inc. (with such number as
determined pursuant to Section (b) of such Warrant), which conversion shall be
effected pursuant to the terms of the within Warrant.


 


 


INSTRUCTIONS FOR REGISTRATION OF STOCK


 


	
  Name

  	
   

  	
   

  
	
   

  	
  (Please
  typewrite or print in block letters)

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  	
   

  
	
   

  	
   

  
	
  Signature