Document:

Exhibit 10.87

 

Prospect Medical Holdings, Inc.

2008 Omnibus Equity
Incentive Plan

 

Non-Qualified Stock Option
Agreement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

2.                                       Grant of Option. The Company
hereby grants to the Participant the right and option (the “Option”) to purchase, on the terms and conditions
hereinafter set forth, the number of Shares set forth on the Notice of Grant of
Stock Option (the “Notice”),
subject to adjustment as set forth in the Plan. 
The purchase price of the Shares subject to the Option (the “Option Price”) shall be as set forth on the Notice.  The Option is intended to be a non-qualified
stock option, and as such is not intended to be treated as an option that
complies with Section 422 of the Internal Revenue Code of 1986, as
amended.

 

3.                                       Vesting of the
Option.

 

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

 

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

 

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

 

2

 

4.                                       Exercise of
Option.

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

(b)                                 Method of
Exercise.

 

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

 

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

 

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

 

4

 

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

 

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

 

5.                                       No Right to
Continued Employment. Neither the Plan nor this Agreement shall be
construed as giving the Participant the right to be retained in the Employment
of the Company or any Affiliate. 
Further, the Company or a Affiliate may at any time dismiss the Participant
or discontinue any other relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided
herein.

 

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

 

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

 

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

 

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

 

10.                                 Notices. Any notice
under this Agreement shall be addressed to the Company in care of its Corporate
Secretary at the principal executive office of the Company, with a copy to the
Director, Human Resources, at the principal executive office of the Company,
and to the Participant at the address appearing in the personnel records of the
Company for the Participant 

 

5

 

or to either party at such other address as either party hereto may
hereafter designate in writing to the other. Any such notice shall be deemed
effective upon receipt thereof by the addressee.

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

(Signature Page Follows)

 

7

 

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

 

 

	
  COMPANY

  	
   

  
	
   

  	
   

  
	
  PROSPECT MEDICAL HOLDINGS, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Samuel S. Lee

  	
   

  
	
   

  	
  Title: Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PARTICIPANT

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
				

 

8

 

Prospect Medical Holdings, Inc.

2008 Omnibus Equity Incentive Plan

 

Notice of Grant of Non-Qualified Stock Option

 

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

 

	
   

  	
  1.

  	
  Participant’s Name:

  

 

	
   

  	
  2.

  	
  Grant Information for this Award:
                              

  
	
   

  	
   

  	
  Option Grant
  Number:                            

  
	
   

  	
   

  	
  Date of Grant:
                              ,
  20

  
	
   

  	
   

  	
  Exercise Price per Share:
                              

  
	
   

  	
   

  	
  Total Number of Shares Subject to Option:
                              

  
	
   

  	
   

  	
  Option Expiration Date:                                 ,
  20     

  

 

	
   

  	
  3.

  	
  The vesting dates shall be:

  

 

	
   

  	
   

  	
  Shares

  	
   

  	
  Vesting Date

  	
   

  	
  Performance Vesting (Yes/No)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
   

  	
   

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

  

 

	
   

  	
  4.

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

  

 

	
   

  	
  5.

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

  

 

9

 

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

 

	
   

  	
   

  	
  Prospect Medical Holdings, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Accepted and Agreed to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Participant:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Home Address:

  	
   

  	
  Business Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
						

 

10Exhibit 10.88

 

Prospect Medical Holdings, Inc.

Stock Option Agreement

 

WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of
Prospect Medical Holdings, Inc. (the “Company”)
has determined that it would be in the best interests of the Company and
its stockholders to grant the Option provided for herein to the
Optionee as set forth in the Notice of Grant of Stock Option attached as Exhibit “A”
(the “Notice”).

 

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

 

1.                                       Definitions. Whenever the
following terms are used in this Stock Option Agreement (the “Agreement”), they shall have the meanings set forth below
and as defined in the Notice.

 

(a)                                  “Affiliate” means any entity that is
consolidated with the Company for financial reporting purposes.

 

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

 

(c)                                  “Change in Control” occurs when, after the
grant of the Option, any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, or any successor
thereto (the “Act”) (other than
any person who on the date of grant of the Option is a director or officer, or
holder of more than 10% of the Shares, of the Company or an Affiliate of the
Company) is or becomes the beneficial owner (as defined in Rule 1 3d-3 of
the Act) directly or indirectly, of securities of the Company representing more
than 50% of the combined voting power of the Company’s then-outstanding
securities entitled to vote in the election of directors

 

(d)                                 “Code” means the Internal Revenue Code of
1986, as amended, or any successor thereto.

 

(e)                                  “Disability” has the meaning ascribed to it in an employment
agreement between the Company and the Optionee or, if not defined therein, then
it shall have the meaning ascribed to it under Section 22(e)(3) of
the Code, as determined by the Committee.

 

(f)                                    “Expiration Date” means the date set forth on the Notice.

 

(g)                                 “Fair Market Value” means, as of any date, the value of the
Shares determined as follows:

 

(i)                                     if the Shares
are publicly traded and are listed on a national securities exchange, the last
reported sale price or, if no such reported sale takes place on such date, the 

 

1

 

average of the closing bid and asked prices on the principal national
securities exchange on which the Shares are listed or admitted to trading;

 

(ii)                                  if the Shares
are quoted on the American Stock Exchange (“AMEX”),
the last reported sale price on the AMEX or, if no such reported sale takes
place on such date, the average of the closing bid and asked prices;

 

(iii)                               if the Shares
are publicly traded but are not quoted on the AMEX nor listed or admitted to
trading on a national securities exchange, the average of the closing bid and
asked prices on such date, as reported by the Wall Street Journal, for the
over-the-counter market; or

 

(iv)                              if none of the
foregoing is applicable, by the Committee in good faith.

 

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

 

(i)                                     “Shares” means shares of common stock of the Company, $0.01
par value per share.

 

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

 

2.                                       Grant of Option. The Company
hereby grants to the Optionee the right and option (the “Option”)
to purchase, on the terms and conditions set forth in the Notice and
hereinafter set forth, the number of Shares set forth in the Notice.  The purchase price of the Shares subject to
the Option (the “Option Price”) shall be as set
forth on the Notice.  The Option is
intended to be a non-qualified stock option, and as such is not intended to be
treated as an option that complies with Section 422 of the Internal
Revenue Code of 1986, as amended.

 

3.                                       Vesting of the
Option.

 

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

 

(b)                                 Change in
Control. Notwithstanding the foregoing, in the event of a Change in Control,
the Option shall become vested as to all the Shares subject thereto.

 

2

 

(c)                                  Termination of
Employment.  If the
Optionee’s employment with the Company and its Affiliates is terminated by the
Company for cause (including, unless otherwise determined by the Committee,
Optionee’s change in status from an employee to a non-employee (other than
director of the Company or any Affiliate)), or if the Optionee terminates his
employment without Good Reason, the Option, to the extent not then vested,
shall be immediately canceled by the Company without consideration; provided,
however, that if the Optionee’s Employment is terminated for any other reason,
including the death or Disability of the Optionee, the unvested portion of the
Option, to the extent not previously cancelled or forfeited, shall immediately
become vested and exercisable.  The
Vested Portion of the Option shall remain exercisable by the Optionee (or his
representative) for a period ending on the earlier of (A) three years
following the date of such termination or (B) the Expiration Date.  If the Optionee is absent from work with the
Company or with a Affiliate because of a temporary disability (any disability other
than a Disability), or on an approved leave of absence for any purpose, the
Optionee shall not, during the period of any such absence, be deemed, by virtue
of such absence alone, to have terminated employment, except to the extent that
the Committee so determines.

 

4.                                       Exercise of
Option. Except as provided below, the Vested Portion of the Option shall
remain exercisable until the Expiration Date.

 

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

 

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

 

3

 

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

 

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

 

(c)                                  Notwithstanding
any other provision of this Agreement to the contrary, Optionee’s right to
exercise the Option shall not occur unless and until the receipt of approval of
the Option by the stockholders of the Company.

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

11.                                 Entire
Agreement. This Agreement, together with the Notice, embodies
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement not expressly set
forth in this Agreement or the Notice shall affect or be used to interpret,
change or restrict, the express terms and provisions of this Agreement or the
Notice.

 

12.                                 Modifications
And Amendments. The terms and provisions of this Agreement and the
Notice may be modified or amended only by written instrument signed by the
parties following approval by the Committee.

 

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

 

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

 

(Signature Page Follows)

 

5

 

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

 

	
   

  	
  COMPANY

  

 

	
   

  	
  PROSPECT MEDICAL HOLDINGS, INC.

  

 

 

	
   

  	
  By:

  	
  /s/ Linda Hodges

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Linda Hodges

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President

  	
   

  

 

 

	
   

  	
  OPTIONEE

  	
   

  

 

 

	
   

  	
     /s/ Samuel S.
  Lee

  	
   

  
	
   

  	
  Name: Samuel S. Lee

  	
   

  

 

6

 

Prospect Medical Holdings, Inc.

Notice of Grant of Stock Option

 

PROSPECT MEDICAL HOLDINGS, INC. (the “Company”),
pursuant to action of the Compensation Committee (the “Committee”) of the Board of Directors of
the Company (the “Board”) taken on
August 20, 2008, granted to the undersigned the following stock option
(the “Option”) to purchase common stock of
the Company (“Shares”), subject to
the terms and conditions of this Notice of Grant of Stock Option (the “Notice”) and the Stock Option Agreement (the “Agreement”). The Agreement is incorporated into and made a
part of this Notice.

 

1.                                       Participant’s
Name: Samuel S. Lee (“Optionee”)

 

2.                                       Grant
Information for this Award:

Date of Grant:                      August 20,
2008

Exercise Price per Share:                $2.40

Total Number of Shares Subject to Option: 1,456,250

Option Expiration Date:                    August 20, 2013

 

3.                                       Vesting:
If the Optionee is in the employ of the Company at each of the following dates,
the Option shall be exercisable for the number of Shares indicated:

 

	
  Shares

  	
   

  	
  Vesting
  Date

  	
   

  	
  Performance
  Vesting (Yes/No)

  	
   

  
	
  833,333

  	
   

  	
  Aug. 20, 2008

  	
   

  	
  No

  	
   

  
	
  311,459

  	
   

  	
  Mar. 19, 2009

  	
   

  	
  No

  	
   

  
	
  311,458

  	
   

  	
  Mar. 19, 2010

  	
   

  	
  No

  	
   

  

 

subject to the terms of the Agreement.

 

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

 

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

 

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

 

 

IN WITNESS WHEREOF, the Company has caused this Notice to be signed by
its duly authorized officer or agent as of the 20th day of August,
2008.

 

	
   

  	
  Prospect Medical Holdings, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/

  	
  Linda Hodges

  
	
   

  	
   

  	
  Linda Hodges

  
	
   

  	
   

  	
  Executive Vice President

  
					

 

 

Accepted and Agreed to:

 

 

	
  Participant:

  	
  /s/ Samuel S. Lee

  	
   

  
	
   

  	
  Samuel S. Lee

  	
   

  
	
   

  	
   

  
	
  Home Address:

  	
   

  	
  Business Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  10780 Santa Monica Blvd., Suite 400

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Los Angeles, California 90025

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