Document:

Exhibit
10.90

 

PROSPECT
MEDICAL HOLDINGS, INC.

 

1998
STOCK OPTION PLAN

 

 

TABLE OF
CONTENTS

 

	
  1.

  	
  PURPOSE

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  SHARES SUBJECT TO THE PLAN

  	
   

  
	
   

  	
  2.1

  	
  Number of
  Shares Available

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  ELIGIBILITY

  	
   

  
	
   

  	
  3.1

  	
  Eligibility
  of Employees

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  ADMINISTRATION

  	
   

  
	
   

  	
  4.1

  	
  Committee
  Authority

  	
   

  
	
   

  	
  4.2

  	
  Committee
  Discretion

  	
   

  
	
   

  	
  4.3

  	
  Composition
  of Committee

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  GRANT AND EXERCISE OF
  OPTIONS

  	
   

  
	
   

  	
  5.1

  	
  Grant of
  Options

  	
   

  
	
   

  	
   

  	
  5.1.1

  	
  Form of
  Option Grant

  	
   

  
	
   

  	
   

  	
  5.1.2

  	
  Date of Grant

  	
   

  
	
   

  	
   

  	
  5.1.3

  	
  Exercise Period

  	
   

  
	
   

  	
   

  	
  5.1.4

  	
  Exercise Price

  	
   

  
	
   

  	
   

  	
  5.1.5

  	
  Method of
  Exercise

  	
   

  
	
   

  	
   

  	
  5.1.6

  	
  Termination

  	
   

  
	
   

  	
   

  	
  5.1.7

  	
  Limitations
  on Exercise

  	
   

  
	
   

  	
   

  	
  5.1.8

  	
  Limitations
  on ISOs

  	
   

  
	
   

  	
   

  	
  5.1.9

  	
  Modification,
  Extension or Renewal

  	
   

  
	
   

  	
   

  	
  5.1.10

  	
  No
  Disqualification

  	
   

  
	
   

  	
  5.2

  	
  Accelerated
  Vesting

  	
   

  
	
   

  	
   

  	
  5.2.1

  	
  Discretionary Acceleration

  	
   

  
	
   

  	
   

  	
  5.2.2

  	
  Acceleration Upon
  Change in Control

  	
   

  
	
   

  	
   

  
	
  6.

  	
  PAYMENT FOR SHARE PURCHASES

  	
   

  
	
   

  	
  6.1

  	
  Payment

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  PRIVILEGES OF STOCK
  OWNERSHIP

  	
   

  
	
   

  	
  7.1

  	
  Voting
  and Dividends

  	
   

  
	
   

  	
  7.2

  	
  Financial
  Statements

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  NON-TRANSFERABILITY

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  CERTIFICATES

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  EXCHANGE AND BUYOUT OF
  OPTIONS

  	
   

  

 

i

 

	
  11.

  	
  SECURITIES
  LAW AND OTHER REGULATORY COMPLIANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  NO
  OBLIGATION TO EMPLOY

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  FUNDAMENTAL CORPORATE
  EVENTS; ADJUSTMENTS TO OPTIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  ADOPTION AND
  STOCKHOLDER APPROVAL

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  TERM OF PLAN

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  AMENDMENT OR
  TERMINATION OF PLAN

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  NONEXCLUSIVITY OF THE PLAN

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  GOVERNING LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  19.

  	
  DEFINITIONS

  	
   

  

 

ii

 

PROSPECT
MEDICAL HOLDINGS, INC.

1998 STOCK OPTION PLAN

 

1.                                       PURPOSE

 

The purpose of the Plan is to provide incentives to attract, retain and
motivate eligible persons whose present and potential contributions are
important to the success of the Company, the Subsidiaries and the Affiliates of
the Company, by offering such persons an opportunity to participate in the
Company’s future performance through awards of either Incentive Stock Options
within the meaning of Section 422 of the Code (“ISOs”) or Non-Qualified
Stock Options as described in Treasury Regulations Section 1.83-7
(“NQSOs”).

 

Capitalized terms not defined in the text are defined in
Section 19.

 

2.                                       SHARES SUBJECT TO THE PLAN

 

2.1.          Number of Shares Available. 
Subject to Section 13, the total number of Shares reserved and
available for grant and issuance pursuant to the Plan shall be 176,000 Shares,
provided, however, that the maximum number of Shares that may be issued under
the Plan to each Participant who is subject to Section 162(m) of the Code
shall be limited to 750,000 Shares. 
Subject to Section 13, Shares reserved for issuance pursuant to
Options granted under this Plan shall again be available for grant and
issuance, in connection with future Options granted under the Plan, in the
event that they: (a) are subject to issuance upon exercise of an Option, but
cease to be subject to such Option for any reason other than exercise of such
Option, or (b) are subject to an Option that otherwise terminates without such
Shares being issued and for which the Participant did not receive any benefits
of ownership.

 

3.             ELIGIBILITY

 

3.1.          Eligibility of Employees, Consultants, Advisors,
Independent Contractors and Directors.  ISOs (as defined in
Section 1 above) may be granted only to employees (including officers and
directors who are also employees) of the Company or of a Subsidiary.  NQSOs (as defined in Section 1 above)
may be granted to employees, consultants, advisors, independent contractors or
directors (including directors who are not employees) of the Company, a
Subsidiary or an Affiliate of the Company.

 

4.                                       ADMINISTRATION

 

4.1.          Committee Authority.  The Plan shall be administered by the
Committee.  Subject to the purposes,
terms and conditions of the Plan, and to the direction of the Board, the
Committee shall have full power to implement and carry out the Plan.  The Committee shall have the authority to:

 

 

4.1.1.       construe and interpret the Plan, any Option
Agreement and any other agreement or document executed pursuant to the Plan;

 

4.1.2.       prescribe, amend and rescind rules and
regulations relating to the Plan;

 

4.1.3.       select persons to receive Options;

 

4.1.4.       determine the form and terms of Options;

 

4.1.5.       determine the number of Shares or other
consideration subject to Options;

 

4.1.6.       determine whether Options will be granted
singly, in combination or in tandem with, in replacement of, or as alternatives
to, other Options under the Plan or benefits under any other incentive or
compensation plan of the Company, any Subsidiary or any Affiliate of the
Company;

 

4.1.7.       grant waivers of Plan or Option conditions;

 

4.1.8.       determine the vesting, exercisability and
payment of Options and accelerate the vesting and/or exercisability of Options,
as provided herein;

 

4.1.9.       correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, any Option or any Option Agreement;

 

4.1.10.     impose such limitations, restrictions and
conditions upon any grant of Options and the issuance of any Shares pursuant to
the exercise of such Options as the Committee shall determine;

 

4.1.11.     determine whether an Option has been earned;
and

 

4.1.12.     make all other determinations necessary or
advisable for the administration of the Plan.

 

4.2.          Committee Discretion.  Any determination permitted
to be made by the Committee under the Plan with respect to any Option shall be
made in its sole discretion at the time of grant of the Option or, unless in
contravention of any express term of the Plan or Option, at any later time, and
such determination shall be final and binding on the Company and all persons
having an interest in any Option under the Plan.

 

4.3.          Composition of Committee.  The Committee shall be
composed of either (i) at least two members of the Board, all of whom are both
Outside Directors and Nonemployee
Directors; or (ii) the Board acting as the Committee.  It is the intent of the Company that the Plan and Options
hereunder satisfy and be interpreted in a manner that, in the case of
Participants who

 

2

 

are or may be Insiders,
satisfies the applicable requirements of Rule 16b-3 (or its successor)
promulgated under the Exchange Act.  In
furtherance of such intent, in connection with any award of Options under the
Plan to non-employee directors, the entire Board shall act as the
Committee.  If any provision of the Plan
or of any Option would otherwise conflict with the intent expressed in this
Section 4.3, that provision, to the extent possible, shall be interpreted
and deemed automatically amended so as to avoid such conflict.

 

5.                                       GRANT AND EXERCISE OF OPTIONS

 

5.1.          Grant of Options.  Except as otherwise limited
herein, the Committee may grant Options to eligible persons pursuant to this
Section 5.1 and shall determine whether such Options shall be ISOs or
NQSOs, the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, vesting and other
restrictions on exercise, and all other terms and conditions of the Option,
subject to the following:

 

5.1.1.       Form of Option Grant.  Each Option granted shall be
evidenced by an Option Agreement, which shall expressly identify the Option as
an ISO or NQSO (“Stock Option Agreement”), and be in such form and contain such
provisions (which need not be the same for each Participant receiving an
Option) as the Committee shall from time to time approve, and which shall
comply with and be subject to the terms and conditions of the Plan.

 

5.1.2.       Date of Grant.  The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option.  The Stock Option Agreement and a copy of the
Plan will be delivered to the Participant within a reasonable time after the
granting of such Option.

 

5.1.3.       Exercise Period.  An Option shall be
exercisable within the times or upon the events determined by the Committee as
set forth in the Stock Option Agreement; provided, however:

 

(a)           no Option shall be exercisable after the expiration often (10) years
from the date the Option is granted; and

 

(b)           no ISO granted to a person who directly or by attribution owns more
than Ten Percent (10%) of the total combined voting power of all classes of
stock of the Company or any Subsidiary (“Ten Percent Stockholder”) shall be
exercisable after the expiration of five (5) years from the date the ISO is
granted.

 

5.1.4.       Exercise Price.  The Exercise Price shall be determined by
the Committee when an Option is granted and may not be less than (i) 100% of
the Fair Market Value of a Share on the date of grant, or (ii) the par value of
a Share; provided, however, that the Exercise Price of any ISO granted to a Ten
Percent Stockholder shall not be less than 110% of the Fair Market Value of a
Share on the date of grant.  Payment for
the Shares purchased shall be made in accordance with Section 6 of the
Plan.

 

3

 

5.1.5.       Method of Exercise.  Options may be exercised only
by delivery to the Company of a written stock option exercise agreement (the
“Exercise Agreement”) in form approved by the Committee (which need not be the
same for each Participant receiving an Option pursuant to the Plan), executed
by the Participant, stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations,
warranties and agreements regarding Participant’s investment intent, access to
information and other matters, if any, as may be required or desirable in order
for the Company, in its determination, to comply with applicable securities
laws, together with payment in full of the Exercise Price for the number of
Shares being purchased.

 

5.1.6.       Termination.  Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option shall always be
subject to the following:

 

(a)           If the Participant is Terminated for any
reason except death or Disability, then the Participant may exercise such
Participant’s Options, but only to the extent that such Options would have been
exercisable by Participant on the Participant’s Termination Date (as defined in
Section 19 under “Termination”), no later than ninety (90) days after such
Termination Date, but in any event, no later than the expiration date of the
Options.

 

(b)           If the Participant is Terminated because of
death or Disability, then the Participant’s Options may be exercised, but only
to the extent that such Options would have been exercisable by Participant on
the Participant’s Termination Date, by Participant (or Participant’s legal
representative, executor, administrator, heir or legatee, as the case may be)
no later than the earlier of (i) one (1) year after said Termination Date or
(ii) the expiration date of the Options.

 

5.1.7.       Limitations on Exercise.  The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.

 

5.1.8.       Limitations on ISOs.  The aggregate Fair Market
Value (determined as of the date of grant) of Shares with respect to which ISOs
are exercisable for the first time by any single Participant during any
calendar year (under the Plan or under any other incentive stock option plan of
the Company, any Subsidiary or any Affiliate of the Company) shall not exceed $100,000.  If the Fair Market Value of Shares on the
date of grant with respect to which ISOs are exercisable for the first time by
a Participant during any calendar year exceeds $100,000, the Options for the
first $100,000 worth of Shares to become exercisable in such calendar year
shall be ISOs and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year shall be NQSOs.  In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date (as defined in Section 14 hereof and
used consistently herein) to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISOs, such different limit shall be
automatically incorporated herein and shall apply to any Options granted after
the effective date of such amendment.

 

4

 

5.1.9.       Modification, Extension or Renewal.  The
Committee may modify, extend or renew outstanding Options and authorize the
grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of participant, impair any of such
Participant’s rights under any Option previously granted.  Any outstanding ISO that is modified,
extended, renewed or otherwise altered shall be treated in accordance with
Section 424(h) of the Code.  The
Committee may reduce the Exercise Price of outstanding NQSOs without the
consent of Participants affected, by a written notice to them; provided,
however, that the Exercise Price may not be reduced below the minimum Exercise
Price that would be permitted under Section 5.1.4 of the Plan for NQSOs
granted on the date the action is taken to reduce the Exercise Price.

 

5.1.10.     No Disqualification.  Notwithstanding any other
provision in the Plan, no term of the Plan relating to ISOs shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under
Section 422 of the Code or, except as provided in Section 5.2.2,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

 

5.2.                              Accelerated Vesting.

 

5.2.1.       Discretionary Acceleration.  Notwithstanding
Section 5.1.3, the Committee shall have the authority to accelerate the
exercisability of Options granted pursuant to the terms of this Plan, provided,
however, that the acceleration of exercisability shall be conditioned upon
compliance with such provisions and restrictions as are necessary to permit
stock issued upon exercise of such Options to continue to qualify for the
exemption from Section16(b) of the Exchange Act as is provided by Rule 16b-3
thereunder.

 

5.2.2.       Acceleration upon Change in Control. 
Notwithstanding anything herein to the contrary, if a Change in Control
occurs or if the Committee determines in its sole discretion that an
Acceleration Event has occurred, then all Options shall become fully
exercisable as of the date such Change in Control occurred or the Committee
determines that an Acceleration Event has occurred, provided, however, that the
acceleration of exercisability shall be subject to the imposition of such
restrictions on transferability of shares of Common Stock subject to such
Options, as are necessary to permit stock issued upon exercise of such Options
to continue to qualify for the exemption from Section 16(b) of the
Exchange Act as is provided by Rule 16b-3 thereunder.  Any ISO accelerated pursuant to this Section 5.2.2 in
connection with an Acceleration Event shall remain exercisable as an ISO under
the Code only to the extent that the applicable dollar limitation of
Section 5.1.8 is not exceeded.  To
the extent such dollar limitations exceeded, the accelerated Option shall be
exercisable as a NQSO.

 

6.                                       PAYMENT FOR SHARE PURCHASES

 

6.1.          Payment.  Payment for Shares purchased pursuant to the
exercise of Options under the Plan may be made in cash (by check or equivalent)
or, where expressly approved by the Committee and permitted by law:

 

(a)           by cancellation of indebtedness of the Company
to the Participant;

 

5

 

(b)           by surrender of shares of the Company’s
Common Stock that are clear of all liens, claims, encumbrances or security
interests and, in the event that Participant is an officer or director of the
Company, to the extent required by Section 16(b) of the Exchange Act or
Rule 16 b-3 thereunder, that have been owned by Participant and have been paid
for within the meaning of Rule 144 promulgated under the Securities Act for more
than six (6) months;

 

(c)           by waiver of compensation due or accrued to
Participant for services rendered to the Company or a Subsidiary;

 

(d)           provided that a public market for the
Company’s Common Stock exists and subject to the ability of the Participant to
sell Shares in compliance with applicable securities laws:

 

(i)            through a “same day sale” commitment from the
Participant and a broker-dealer (an “NASD Dealer”) that is a member of the
National Association of Securities Dealers, Inc.  (“NASD”), whereby the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased in order to pay the
Exercise Price with respect thereto, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward said Exercise Price directly to
the Company, except that in the case of any Participant subject to
Section 16(b) of the Exchange Act such cashless exercise of the Option may
not occur within six (6) months of the date of grant of the Option; or

 

(ii)           through a “margin” commitment from the
Participant and an NASD Dealer, whereby Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of the
Exercise Price with respect thereto, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward said Exercise Price directly to
the Company; or

 

(e)           by any combination of the foregoing.

 

Notwithstanding the foregoing, the Exercise Price of an Option held by
a director who is not an employee shall be paid either (i) in cash; or (ii)
pursuant to subsection (a) of this Section 6.1, or (iii) by any
combination of the foregoing (i) and (ii).

 

7.                                       PRIVILEGES OF STOCK OWNERSHIP

 

7.1.          Voting and Dividends.  No Participant shall have any
of the rights of a stockholder with respect to any Shares until the Shares are
issued to the Participant.  After Shares
are issued to the Participant, the Participant shall be a stockholder and have
all the rights of a stockholder with respect to such Shares, including the
right to vote and receive all dividends or other distributions made or paid
with respect to such Shares.

 

6

 

7.2.          Financial Statements.  The Company shall provide
financial statements to each Participant annually during the period such
Participant has Options outstanding, provided, however, that the Company shall
not be required to provide such financial statements to Participants whose services
in connection with the Company assure them access to equivalent information.

 

8.                                       NON-TRANSFERABILITY

 

Options granted under the Plan, and any interest therein, shall not be
transferable or assignable by Participant, and may not be made subject to execution,
attachment or similar process, otherwise than by will or by the laws of descent
and distribution or as consistent with the specific Plan and Option Agreement
provisions relating thereto.  During the
lifetime of the Participant, an Option shall be exercisable only by the
Participant, and any elections with respect to an Option may be made only by
the Participant.

 

9.                                       CERTIFICATES

 

All certificates for Shares or other securities delivered under the
Plan shall be subject to such stop transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the Securities and Exchange
Commission (“SEC”) or any stock exchange or automated quotation system upon
which the Shares may be listed or included.

 

10.                                 EXCHANGE AND BUYOUT OF OPTIONS

 

The Committee may, at any time or from time to time, authorize the
Company, with the consent of the respective Participants, to issue new Options
in exchange for the surrender and cancellation of any or all outstanding
Options.  Except with respect to ISOs,
the Committee may at any time buy from a Participant an Option previously
granted, with payment in cash, securities or other consideration, based on such
terms and conditions as the Committee and the Participant shall agree.

 

11.                                 SECURITIES LAW AND OTHER REGULATORY COMPLIANCE

 

An Option shall not be effective unless such Option, as well as the
grant and exercise thereof, is in compliance with all applicable federal and
state securities laws, the applicable rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed or included, as they are in effect on
the date of grant of the Option and also on the date of exercise.  Notwithstanding any other provision in the
Plan, the Company shall have no obligation to issue or deliver certificates for
Shares issued upon exercise of Options under the Plan prior to: (a) obtaining
any approvals from governmental agencies that the Company determines are
necessary or advisable, and/or (b) completion of any registration or other
qualification of such Shares under any state or federal law or ruling of any
governmental body that the Company determines to be necessary or
advisable.  The Company shall be under
no obligation to register the Shares with

 

7

 

the SEC or to effect
compliance with the registration, qualification or listing requirements of any
state securities laws, stock exchange or automated quotation system, and the
Company shall have no liability for any inability or failure to do so.

 

12.                                 NO OBLIGATION TO EMPLOY

 

Nothing in the Plan or any Option granted under the Plan shall confer
or be deemed to confer on any Participant any right to continue in the employ
of, or to continue any other relationship with, the Company, any Subsidiary or
any Affiliate of the Company or limit in any way the right of the Company, any
Subsidiary or any Affiliate of the Company to terminate Participant’s
employment or other relationship at any time, with or without cause.

 

13.                                 FUNDAMENTAL CORPORATE EVENTS; ADJUSTMENTS TO OPTIONS

 

The existence of outstanding Options shall not affect in any way the
right or power of the Company or its stockholders to effect or authorize any
adjustments, recapitalizations, reorganizations or other changes in the
Company’s capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any other corporate act or proceeding,
whether of a similar character or otherwise.

 

If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of its Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (i) the
number, class, and Exercise Price of Shares subject to an outstanding Option
hereunder shall be appropriately adjusted in such a manner as to entitle a Participant
to receive upon exercise thereof (and, if applicable, for the same aggregate
cash consideration), the same total number and class of shares as such
Participant would have received had such Participant exercised such Option in
full immediately prior to such event; and (ii) the number and class of shares
with respect to which Options may be granted under the Plan shall be adjusted
by substituting for the total number of shares of Common Stock then reserved
that number and class of shares of stock that would have been received by the
owner of an equal number of outstanding shares of Common Stock as the result of
the event requiring the adjustment. 
Notwithstanding the foregoing provisions of this paragraph, fractions of
a security shall not be issued, but shall either be paid in cash at Fair Market
Value or shall be rounded up to the nearest unit, as determined by the
Committee; and provided, further, that the Exercise Price of any Option may not
be decreased to below the par value of the Shares.

 

After a merger of one or more corporations into the Company, in which
the Company shall be the surviving corporation, each holder of an outstanding
Option shall, at no additional cost, be entitled to receive upon exercise of
such Option (subject to any required action by stockholders of the Company), in
lieu of the number of Shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other securities to
which such holder would have been entitled pursuant to the terms of the
agreement of merger if,

 

8

 

immediately prior to such
merger, such holder had been the holder of record of a number of shares of
Common Stock equal to the number of shares as to which such Option shall then
be so exercisable.

 

If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated, or sells or otherwise disposes of substantially all
its assets to another corporation while unexercised Options remain outstanding
under the Plan, (i) subject to the provisions of clause (ii) below, after the
effective date of such merger, consolidation, liquidation or sale, as the case
may be, each holder of an outstanding Option shall be entitled to receive upon
exercise of such Option in lieu of the shares of Common Stock subject thereto,
shares of such stock or other securities, cash or property as the holder of an
equal number of shares of Common Stock received pursuant to the terms of the
merger, consolidation, liquidation or sale; or (ii) all outstanding Options may
be canceled by the Board as of the effective date of any such merger,
consolidation, liquidation or sale, provided that: (x) 30 days’ prior written
notice of such cancellation shall be given to each holder of an Option, and (y)
each holder of an Option shall have the right to exercise such Option to the
extent that the same is then exercisable or, if the time for exercise of all
unexercised and unexpired Options shall have been accelerated in connection
therewith, in full, during the 30-day period preceding the effective date of
such merger, consolidation, liquidation or sale.

 

Except as expressly provided above, the issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, for cash, property or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares then subject to outstanding
Options.

 

14.                                 ADOPTION AND STOCKHOLDER APPROVAL

 

The Plan shall become effective on the date that it is adopted by the
Board (the “Effective Date”).  The
Company shall submit the Plan for approval by the stockholders of the Company
at the next annual meeting of stockholders of the Company or pursuant to
written stockholder consent in accordance with applicable law in order to
obtain the advantages under NASD, Internal Revenue Service, SEC and/or other
regulations that approval of stockholders may bestow.

 

15.                                 TERM
OF PLAN

 

The Plan will terminate ten (10) years from the Effective Date.

 

16.                                 AMENDMENT OR TERMINATION OF PLAN

 

The Board may at any time terminate or amend the Plan in any respect,
including without limitation amendment of any form of Option Agreement or
instrument to be executed pursuant to the Plan; provided, however, that the
Board shall not, without the approval of the

 

9

 

stockholders of the
Company, amend the Plan in any manner that requires such stockholder approval
pursuant to (i) the Code (including Section 162(n) thereof) or the
regulations promulgated thereunder as such provisions apply to ISOs, (ii) the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder or (iii)
the rules promulgated by any national securities exchange or automated
quotation system on which the Shares are then listed or included.

 

17.                                 NONEXCLUSIVlTY OF THE PLAN

 

Neither the adoption of the Plan by the Board, the submission of the
Plan to the stockholders of the Company for approval, nor any provision of the
Plan shall be construed as creating any limitations on the power of the Board
to adopt such additional compensation arrangements as it may deem desirable,
including, without limitation, the granting of stock options and bonuses
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.

 

18.                                 GOVERNING LAW

 

The Plan and all agreements, documents and instruments entered into
pursuant to the Plan shall be governed by and construed in accordance with the
internal laws of the State of California, excluding that body of law pertaining
to conflicts of laws.

 

19.                                 DEFINITIONS

 

As used in the Plan, the following terms shall have the following
meanings:

 

“Acceleration Event”  means, but is not limited to, any Change of
Control, or any other event determined in the discretion of the Committee to
warrant acceleration of all then outstanding Options.

 

“Affiliate”  means, with respect to any person or entity,
any other person or entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such person or entity where “control” (including the terms “controlled by” and
“under common control with”) means the possession, direct or indirect, of the
power to cause the direction of the management and policies of such person or
entity, whether through the ownership of voting securities, by contract or
otherwise.

 

“Board”  means the Board of Directors of the Company.

 

“Change in Control”  means the occurrence of any of the following
events:

 

(A)          when the Company acquires actual knowledge
that any person (within the meaning of that term as used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule l3d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company’s then outstanding securities;

 

10

 

(B)           upon the first purchase of the Company’s
Common Stock pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Company);

 

(C)           upon the approval by the Company’s
stockholders of: (i) a merger or consolidation of the Company with or into another
corporation, whether or not the Company is the surviving corporation if the
holders of the Company’s Common Stock immediately prior to the consummation of
such transaction hold less than 50% of the voting power of the combined entity
immediately thereafter, (ii) a sale or disposition of all or substantially all
of the Company’s assets, or (iii) a plan of liquidation or dissolution of the
Company;

 

(D)          if during any period of two consecutive
years, the individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company’s stockholders, of each
new director is approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; or

 

(E)           if the Board or any designated committee
determines, in its sole discretion, that any person (within the meaning of that
term as used in Sections 13(d) and 14(d) of the Exchange Act) directly or
indirectly exercises a controlling influence over the management or policies of
the Company (other than solely by virtue of being an officer or director of the
Company), which such person did not exercise on the Effective Date.

 

“Code”  means the Internal Revenue Code of 1986, as
amended.

 

“Committee”  means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.

 

“Company”  means Prospect Medical Holdings, Inc., a
corporation organized under the laws of the State of Delaware, or any successor
corporation.

 

“Disability”  means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the
Code, as determined by the Committee.

 

“Exchange Act”  means the Securities Exchange Act of 1934, as
amended.

 

“Exercise Price”  means the price per Share at which a holder
of an Option may purchase the Shares issuable upon exercise of the Option, but
in no event shall such price be less than the par value of the Common Stock.

 

“Fair Market Value”  means, as of any date, the value of a share
of the Company’s Common Stock determined as follows:

 

(a)           if such Common Stock is publicly traded and is then quoted on the
Nasdaq National Market, its last reported sale price on the Nasdaq National
Market on such date or, if no such reported sale takes place on such date, the

 

11

 

average of the closing bid and asked prices on the last market day for
which such prices were reported;

 

(b)           if such Common Stock is publicly traded and is then listed or admitted
to trading on a national securities exchange, the last reported sale price on
the exchange on such date or, if no such reported sale takes place on such
date, the average of the closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
on the last market day for which such prices were reported;

 

(c)           if such Common Stock is publicly traded but is not then quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on such
date, if and as reported by the Wall Street Journal, for the over-the-counter
market; or

 

(d)           if none of the foregoing is applicable, by the Board in good faith.

 

“Insider”  means an officer or director of the Company
or other person whose transactions in the Company’s Common Stock are subject to
Section 16 of the Exchange Act.

 

“Nonemployee Director”  means any Non-Employee Director of the
Company as defined in Rule 16b-3(b)(3)(i) under the Exchange Act.

 

“Option”  means an option to purchase Shares of Common
Stock of the Company granted under this Plan.

 

“Option Agreement”  means, with respect to each Option, the
signed written agreement between the Company and the Participant setting forth
the terms and conditions of the Option.

 

“Outside Director”  means any outside director as defined in
Section 162(m) of the Code and the regulations issued thereunder.

 

“Participant”  means a person who receives an Option under
the Plan.

 

“Plan”  means this Prospect Medical Holdings, Inc.,
1998 Stock Option Plan, as amended from time to time.

 

“Securities Act”  means the Securities Act of 1933, as amended.

 

“Shares”  means the shares of the Company’s Common
Stock, $0.01 par value per share, reserved for issuance under the Plan, as
adjusted pursuant to Section 13, and any security issued in respect
thereto or in replacement therefor.

 

12

 

“Subsidiary” means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of an Option, each of the corporations other than the last
corporation in the unbroken chain directly owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

“Termination” or “Terminated” means, for purposes of the Plan with respect
to a Participant, that the Participant has ceased to provide services as an
employee, director, consultant, independent contractor or advisor to the
Company or a Subsidiary or Affiliate of the Company, except in the case of sick
leave, military leave, or any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than ninety (90) days, or
reinstatement upon the expiration of such leave is guaranteed by contract or
statute.  The Committee shall have sole
discretion to determine whether a Participant has ceased to provide such
services and the effective date on which the Participant ceased to provide such
services (the “Termination Date”).

 

13Exhibit 10.91

 

FIRST AMENDMENT TO

PROSPECT MEDICAL HOLDINGS, INC.

1998 STOCK OPTION PLAN

 

 

1.                                       The
purpose of this First Amendment to the 1998 Stock Option Plan (the “Plan”) of
Prospect Medical Holdings, Inc. (the “Company”), effective as of May 1, 2002,
is to amend the Plan to provide for a continuous pool of 1,200,000 shares of
the Company’s common stock for allocation to previously issued and outstanding
stock option awards under the Plan and future stock option grants of the
Company under the Plan.  Options which
have terminated, whether by forfeiture or otherwise, or alternatively have been
exercised, no longer have shares allocated to them and therefore do not count
against the 1,200,000 pool amount.   The
1,200,000 pool amount is to consist at all times of the aggregate of (i) the
number of shares which correspond to options previously issued and which
options remain outstanding (i.e. not terminated or exercised) under the Plan
(the “Outstanding Option Grants”), and (ii) the number of shares derived by subtracting
the Outstanding Option Grants from 1,200,000 shares (the “Available Future
Option Grants”).

 

2.                                       By
way of formal adoption and approval of the amendments described above, the
following specific amendments to the Plan are hereby made.

 

(a)          Paragraph 2.1 of the
Plan is hereby amended in its entirety as follows:

 

“2.1  Number of Shares Available.  Subject to Section 13, the total number
of Shares reserved and available for grant and issuance pursuant to the Plan
shall be that number of shares derived by subtracting (i) the number of shares
which correspond to stock options previously issued by Prospect, pursuant to
the Plan, and which remain outstanding (the “Outstanding Option Grants”) from
(ii) 1,200,000 total shares (the “Available Future Option Grants”); provided,
however that the maximum number of Shares that may be issued under the Plan to
each Participant who is subject to Section 162(m) of the Code shall be
limited to 750,000 Shares.  Subject to
Section 13, Shares reserved for issuance pursuant to Options granted under
this Plan shall again be available for grant and issuance, in connection with
future Options granted under the Plan, in the event that they: (a) are subject
to issuance upon exercise of an Option, but cease to be subject to such Option
for any reason, other than exercise of such Option, (b) are subject to an
Option that otherwise terminates without such Shares being issued and for which
the Participant did not receive any benefits of ownership, or (c) are subject
to an Option that is  exercised by the
Participant; provided, however that in no event shall the total number of
Outstanding Option Grants and Available Future Option Grants exceed 1,200,000
shares of the Company’s common stock”.

 

 

(b)         Section 14 of the
Plan is hereby amended in its entirety as follows:

 

“14.   Adoption
and Stockholder Approval.

 

The Plan shall become
effective on the date that it is adopted by the Board (the “Effective
Date”).  Amendments to the Plan
(“Amendments”) shall become effective on the date that they are adopted by the
Board (the “Amendment Effective Date”). 
The Company shall submit any Amendments for approval by the stockholders
of the Company at the next annual meeting of stockholders of the Company or
pursuant to written stockholder consent to the extent necessary to comply with
any required consent requirements contained in Section 16 of the Plan
and/or as may be required by applicable law in order to obtain the advantages
under NASD, Internal Revenue Service, SEC, and/or other regulations that
approval of stockholders may bestow”.

 

3.               Except
as above provided, the Plan shall remain unchanged and shall remain in full
force and effect.

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