Exhibit 10.46


 


ASSIGNABLE OPTION AGREEMENT


 


THIS
ASSIGNABLE OPTION AGREEMENT
(“Agreement”) is made as of the 1st day of October, 2003, by and
among Prospect Medical Holdings, Inc., a Delaware corporation (“Systems”),
Prospect Professional Care Medical Group, Inc., a California professional
corporation (“Group”) and Prospect Medical Group, Inc., a California
professional corporation (“Prospect Medical Group”), with reference to the
following facts:


 


RECITALS


 


A.   Group
is a professional corporation that is organized and operated as an independent
practice association (the “Practice”).


 


B.   Prospect Medical Group is the
owner of all the outstanding shares of Group.


 


C.   Simultaneously
herewith Group and Systems entered into that Management Services Agreement
dated as of October 1, 2003 (the “Management Services Agreement”) wherein
Group agreed to grant Systems (i) an assignable option to purchase all of the
assets of Group, and (ii) the right to designate the purchaser (“Successor
Physician”) of all or part of the issued and outstanding stock in Group.  When used in this Agreement, the term
“Assets” shall mean all of Group’s and Prospect Medical Group’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 Prospect Medical Group’s right,
title, interest and estate in and to all of the issued and outstanding stock in
Group, including any rights to any additional stock, preemptive rights,
warrants, and the like, as set forth in Exhibit B, with an option on the terms
and conditions set forth herein.


 


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, Group, Prospect Medical Group and Systems agree as
follows:


 


1. 
 GRANT OF OPTION.


 


1.1  Prospect Medical Group hereby grants to
Systems an assignable option to purchase all on any part of the Assets (the
“Assets Option”), on the terms and subject to the conditions set forth in this
Agreement


 


1.2 Group
and Prospect Medical Group hereby grant to Systems 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,
Systems 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  Group
and Prospect Medical Group represent and warrant that as of the day and year
first above written and during the term of this Agreement, Exhibits A and 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 the Amended and Restated Credit Succession Agreement
dated July 14, 1997, as amended by Amendment No. One to Amended and
Restated Succession Agreement dated as of April 6, 2000 by and among Jacob
Y. Terner, M.D., Prospect Medical Holdings, Inc., a Delaware corporation,
Prospect Medical Group, Santa Ana/Tustin Physicians Group, Inc., a California
professional corporation and Imperial Bank, a California banking corporation
(“Imperial”) (as amended, the “Credit Succession Agreement”), Group shall not
recognize any share transfer or other action not in compliance with the terms
of this Agreement.


 


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 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 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 Group and Prospect Medical Group
acknowledges receipt of such payment.


 


4. 
 EXERCISE OF OPTION.


 


4.1  During
the Term of the this Agreement, Systems may elect to exercise the Option at any
time.  In the event of an election by Systems to exercise the Option,
Systems may exercise either the Assets Option of the Stock Option or both, at
Systems’ sole discretion.


 


4.2  Notwithstanding
the provisions of Section 4.1, if the Management Services Agreement is
terminated by either party, for any reason, System’s right to exercise the
Option is automatically and immediately exercised as of the termination
date of the Management Services Agreement such that Systems may exercise either
the Assets Option of the Stock Option or both, at such time.


 


4.3  To
the extent that the Assets Option is exercised by Systems, Systems will send
Group a written notice (the “Assets Exercise Notice”) specifying the Assets to
be purchased.   Systems may exercise the Assets Option as many times
as Systems elects in its sole discretion.


 


4.4  To
the extent that the Stock Option is exercised by Systems, Systems will send
Group a written notice (the “Stock Exercise Notice”) specifying the Stock to be


 

















 


purchased. 
 Systems may designate the Successor Physician(s) who will exercise the
Stock Option as many times as Systems 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  Systems
may cancel any Assets Exercise Notice or Stock Exercise Notice at any time.


 


4.7  Group
and Prospect Medical Group shall cooperate with Systems in any due diligence.


 


5. 
 ASSIGNMENT OF THE OPTION.  Systems may elect to assign either
the Assets Option or the Stock Option or both to any person, by a written
assignment, signed by both Systems and the assignee, which designates the
Assets 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 (or its nominee) 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 Systems, 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 Systems to Group and Prospect Medical Group within a reasonable
time period following execution of any assignment pursuant to this
Agreement.  When the context so requires in this Agreement, the term
“Systems” 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. The parties further understand and agree that
the Assets Option and the Stock Option are concurrently herewith being
collaterally assigned to Comerica Bank, a Michigan banking corporation pursuant
to that certain Collateral Assignment of Transaction Documents, dated as of
October 1, 2003.


 


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 (“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, Systems shall pay Group the Assets Purchase Price at Closing in the
form of immediately available funds transferred by wire to an


 

















 


account
at a financial institution designated by Group.  For the Stock,
Systems shall cause the Successor Physician to pay Prospect Medical Group the
Stock Purchase Price.


 


6.3  CLOSING.  The
transactions contemplated by this Agreement are to close forty-five (45) days
after the date of either the Assets Exercise Notice or the Stock Exercise
Notice, as the case may be (“Closing”), unless extended by Systems.


 


7. 
 ADDITIONAL OBLIGATIONS OF GROUP.


 


7.1  AFFIRMATIVE
COVENANTS.  To the extent that Group and Prospect Medical Group
participate in the Practice and own, control, or use the Assets, Group and
Prospect Medical Group shall:


 


(a)  CONDUCT
OF PRACTICE.  Conduct Group’s business efficiently and without
voluntary interruption and preserve all rights, privileges, and franchises held
by Group and Group’s Practice, including the maintenance of all contracts, copyrights,
trademarks, licenses, registrations, etc.;


 


(b)  USE.  Make
use of the Assets with reasonable care to prevent diminution in value of the
Practice and the Assets, and keep the Assets in good repair;


 


(c)  VALUE.  Perform
all acts necessary to maintain, preserve, and protect the Assets, and maintain
fire and extended coverage insurance on the Assets in the amounts and under
policies acceptable to Systems, and provide Systems with the original policies
and certificates at Systems’ request;


 


(d)  FINANCING
STATEMENTS.  Execute and deliver to Systems all financing statements
and other documents that Systems requests, in order to put third parties on
notice of this Agreement;


 


(e)  ACCESS.  Permit
Systems, its representatives, and its agents to inspect the Assets at any time,
and to make copies of records pertaining to the Assets, at reasonable times at
Systems’ request;


 


(f)  REPORTS.  Furnish
Systems any reports relating to the Assets at Systems’ request;


 


(g)  DEFAULTS.  Notify
Systems promptly in writing of any default, potential default, or any
development that might have a material adverse effect on the Assets, the Stock,
or the Practice, or of any litigation that may have a material adverse effect
on the Practice;


 


(h)  EXPENSES.  Pay
all expenses, including attorneys’ fees, incurred by Systems 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;


 

















 


(i)  INDEMNITY.  Indemnify
Systems against losses, liabilities, or damages, costs and expenses of any
kind, including reasonable attorneys’ fees, caused to Systems 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 Stock; and


 


(k)  DELIVERY
OF CERTIFICATES.  Deliver to Systems all certificates heretofore
issued representing all of the shares of Group’s capital stock held of record
or beneficially owned by Prospect Medical Group, and each certificate hereafter
issued representing any share of Group’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 Credit Succession Agreement is no longer in effect.


 


7.2  NEGATIVE
COVENANTS.  Except as required under the Credit Succession Agreement,
without the prior written consent of Systems, Group and Prospect Medical Group
shall not:


 


(a)  TRANSFER.  Sell,
lease, transfer, or otherwise dispose of the Assets and Stock;


 


(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 Group;


 


(c)  NO
FURTHER HYPOTHECATION.  Pledge, hypothecate, encumber, redeem or
dispose of the Assets, the Stock or any interest therein until all of Group’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
Systems;


 


(e)  USE.  Use
the Assets or the Stock for any unlawful purpose or in any way that would void
any effective insurance;


 


(f)  NAME
AND LOCATION CHANGES.  Change the name or place of business or use a
fictitious business name without the prior express consent of Systems; and


 


(g)  ISSUANCE
OF STOCK; CHANGE IN OWNERSHIP; MERGERS AND CONSOLIDATION.  Permit any
issuance of Stock, other equity, or debt; permit any change in the composition
or respective percentage ownership of Group; permit Group 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.  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, Group, Prospect Medical Group,
and Systems 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.  Systems shall ensure that all of the
assignees likewise comply with the obligations of confidentiality imposed by
this Section, except that Systems 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.


 


9. 
 GENERAL.


 


9.1  COMPLIANCE
WITH LAW.  Group and Prospect Medical Group shall 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, Group and
Prospect Medical Group on the one hand and Systems (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 Systems’ rights and duties under this Agreement may be assigned or delegated
by Systems or Prospect Medical Holdings, including but not limited to an
assignment to Comerica Bank; provided, however, that Systems or Prospect
Medical Holdings, Inc., shall give written notice of any such assignment to the
Group and Prospect Medical Group 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 Group or Prospect Medical Group.  This
Agreement binds the successors, heirs, and authorized assignees of the parties.


 


9.4  ENTIRE
AGREEMENT.  Except as expressly provided in this Agreement 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.


 


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 Group or Prospect Medical Group:


 


c/o
Prospect Medical Group


1920
East 17th Street, Suite 200


Santa
Ana, California 92705


Attention:  Jacob
Y. Terner, M.D.


 


If
to Systems:


Prospect
Medical Systems, Inc.


c/o
Prospect Medical Holdings


6083
Bristol Parkway, Suite 100


Culver
City, California 90230


Attention:  Jacob
Y. Terner, M.D.


 


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 the parties, provided that
any amendment shall be in writing and executed by all parties.


 


9.10
SEVERABILITY.  If any provision of this Agreement is held 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.  Group, Prospect Medical Group, and Systems 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 Group and a majority of the
other parties otherwise agree.  As soon as reasonably practicable, a
hearing with respect to the dispute or matter to be resolved shall be conducted
by the arbitrator.  As soon as reasonably practicable thereafter, the
arbitrator shall arrive at a final decision, which shall be reduced to writing,
signed by the arbitrator and mailed to each of the parties and their legal
counsel.


 


(d)  All
decisions of the arbitrator shall be final, binding and conclusive on the
parties and shall constitute the only method of resolving disputes or matters
subject to arbitration pursuant to this Agreement.  The arbitrator or
a court of appropriate jurisdiction may issue a writ of execution to enforce
the arbitrator’s judgment.  Judgment may be entered upon such a
decision in accordance with applicable law in any court having jurisdiction
thereof.


 


(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
CONFLICTS.  In the event that any provision contained herein shall
conflict with the Credit Succession Agreement, the provision of the Credit
Succession Agreement shall control and such conflicting provision herein shall
be of no further force or effect.


 


IN
WITNESS WHEREOF, Group, Prospect Medical Group, and Systems execute this
Agreement by their duly authorized representatives as set forth below.


 


	
  “PROSPECT
  MEDICAL SYSTEMS, INC.”,

  	
  “GROUP”

  
	
  a
  Delaware corporation

  	
  Prospect
  Professional Care Medical Group, Inc., a California professional corporation

  
	
   

  	
   

  
	
  /s/ R. Stewart Kahn

  	
   

  	
  /s/ Jacob Y. Terner

  	
   

  
	
  R.
  Stewart Kahn

  	
  Jacob
  Y. Terner, M.D.

  
	
  Executive
  Vice President

  	
  President
  & Chief Executive Officer

  
				



 

















 


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 Group and prepaid deposits relating to the
Practice.


 


4. 
 All accounts receivable of Group (“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 Group’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 Group’s Articles, Bylaws, corporate
minutes, stock shares and general ledger.


 


9. 
 Group’s right to reimbursement for all professional services provided to
managed care and fee-for-service patients relating to the Practice.


 


10.  All
of Group’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 Group that in any way pertain to the Practice.


 

















 


EXHIBIT “B”


 


STOCK


 


Prospect
Medical Group is the owner of all shares of Group as owner of shares of the
former Prospect LA Medical Group, Inc. which merged into Professional Care
Medical Group, Inc. on September 30, 2003 with Professional Care Medical
Group, Inc. as the “surviving corporation” with a name change to Prospect Professional
Care Medical Group, Inc.