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Exhibit 10.195    
    

SECOND AMENDMENT TO

PROSPECT MEDICAL HOLDINGS, INC.

1998 STOCK OPTION PLAN  

        1.     The
purpose of this Second Amendment to the 1998 Stock Option Plan (the "Plan") of Prospect Medical Holdings, Inc. (the "Company"), effective as of May 7,
2004, is to amend the Plan to provide for the reservation and availability for grant and issuance of a maximum aggregate number of 2,040,000 shares of the Company's common stock ("Option Pool
Amount"). Options that have terminated, whether by forfeiture or otherwise, or have been surrendered pursuant to an option exchange program will not count against the Option Pool Amount. 

        As
amended, the number of shares reserved and available for grant and issuance under the Plan at any time is calculated by subtracting from the Option Pool Amount the number of shares
that corresponds to the number of stock options the Company has previously issued under the Plan that have either been exercised or have not been exercised and remain outstanding. 

        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 from the Option Pool Amount (as hereinafter defined) the number of shares that corresponds to the number of stock options the Company has
previously issued under the Plan that have either been exercised or have not been exercised and remain outstanding; 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. 

The
Option Pool Amount ("Option Pool Amount") shall consist of the maximum aggregate number of 2,040,000 shares of the Company's common stock. 

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 an Option that otherwise terminates, whether by forfeiture or otherwise, without such Shares being issued and for which the Participant did
not receive any benefits of ownership or (b) have been surrendered pursuant to an option surrender or option exchange program. 

	(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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Exhibit 10.196    
    

AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT  

        THIS AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT (this "Agreement") is made as of the 27th day of September,
2004, by and among Prospect Medical Systems, Inc., a Delaware corporation ("PMS"), Prospect Medical Group, Inc., a California professional
corporation ("PMG"), and Jacob Y. Terner, M.D. ("Shareholder"), with reference to the following facts: 

RECITALS  

        A.    PMG
owns and operates a professional corporation that is organized and operated as a medical group and an independent practice association (the
"Practice"). 

        B.    All
of the issued and outstanding shares of PMG are owned by Shareholder. 

        C.    Pursuant
to the Assignable Option Agreement dated as of January 13, 2000 among the parties hereto (as amended or otherwise modified prior to the date hereof, the  Prior Assignable Option Agreement"),
PMG and Shareholder granted to PMS and PMS acquired from PMG and Shareholder an assignable option to purchase all
of the assets of PMG and the right to designate the purchaser ("Successor Physician") of all or part of the issued and outstanding stock in PMG. When
used in this Agreement, the term "Assets" shall mean all of PMG's and Shareholder's right, title, interest and estate in and to all the assets of every
kind and description used in or pertaining to the Practice, including but not limited to the assets set forth on Exhibit A. When used in this
Agreement, the term "Stock" shall mean all of Shareholder's right, title, interest and estate in and to all of the issued and outstanding stock in PMG,
including any rights to any additional stock, preemptive rights, warrants, and the like, as set forth on Exhibit B. 

        D.    PMS,
PMG and Shareholder desire to enter into this Agreement to incorporate within the terms, conditions and provisions of one agreement all of the terms, conditions and
provisions governing assignable options to purchase all of the Assets and the right to designate the Successor Physician of all or part of the issued and outstanding Stock and to amend and restate the
terms, conditions and provisions set forth in the Prior Assignable Option Agreement. 

        NOW,
THEREFORE, in consideration of the foregoing promises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, PMS,
PMG and Shareholder agree to amend and restate the Prior Assignable Option Agreement in its entirety to read as follows: 

1.    Grant of Option.    

        1.1   PMG
hereby grants to PMS an assignable option to purchase all or any part of the Assets (the "Assets Option"), on the
terms and subject to the conditions set forth in this Agreement. 

        1.2   PMG
and Shareholder hereby grant to PMS, the assignable right to designate a Successor Physician or Successor Physicians, which person or persons must be duly licensed
physicians in the State of California or otherwise permitted by law to be a shareholder in a professional corporation, to purchase all or part of the Stock (the "Stock
Option"), on the terms and subject to the conditions set forth herein. In its sole discretion, PMS may designate the amount of Stock which is to be purchased. The Assets Option
and the Stock Option are collectively referred to herein as the "Option." 

        1.3   PMG
and Shareholder represent and warrant that as of the day and year first above written and during the term of this Agreement,  Exhibit A and Exhibit B are true and complete listings of the Assets and Stock,
respectively, as revised from time to time pursuant to this Agreement. 

        1.4   Except
as set forth in the Credit Succession Agreement, dated as of September 27, 2004, by and among PMS, Sierra Medical Management, Inc., a Delaware
corporation ("SMM"), Pinnacle Health Resources, a California corporation ("PHR"; and together with PMS
and SMM, each a "Management Company" and collectively, the "Management Companies"), PMG, Sierra Primary
Care Medical Group, 

 

A
Medical Corporation, a California professional corporation ("Sierra Primary"), Santa Ana/Tustin Physicians Group, Inc., a California
professional corporation ("Santa Ana/Tustin"), Pegasus Medical Group, Inc., a California professional corporation
("Pegasus"), Antelope Valley Medical Associates, Inc., a California professional corporation
("Antelope"), Nuestra Familia Medical Group, Inc., a California professional corporation
("Nuestra"), Prospect Health Source Medical Group, Inc., a California professional corporation ("Prospect
Health"), Prospect Professional Care Medical Group, Inc., a California professional corporation ("Prospect
Professional"), Prospect NWOC Medical Group, Inc., a California professional corporation ("Prospect NWOC"), APAC Medical
Group, Inc., a California professional corporation ("APAC"), StarCare Medical Group, Inc., a California professional corporation
("StarCare"; and together with PMG, Sierra Primary, Santa Ana/Tustin, Pegasus, Antelope, Nuestra, Prospect Health, Prospect Professional, Prospect NWOC,
APAC, each a "Professional Corporation" and collectively, the "Professional Corporations"), PC
Shareholders (as defined therein, the "PC Shareholders") and Residential Funding Corporation, a Delaware corporation
("Lender") (as the same may be amended, supplemented, restated or otherwise modified from time to time, the "Credit Succession
Agreement"), PMG shall not recognize any share transfer or other action not in compliance with the terms of this Agreement. When used in this Agreement, the term
"Applicable Management Company" shall mean (i) with respect Sierra Primary, Pegasus or Antelope, SMM (ii) with respect to PMG, Prospect
Health, Prospect Professional, Nuestra, Prospect NWOC or Santa Ana/Tustin, PMS and (iii) with respect to APAC or StarCare, PHR. 

2.    Term of Agreement.    The term of this Agreement commences as of the day and year first above written and continues for thirty
(30) years ("Term"). So long as the term of that certain Amended and Restated Management Services Agreement, made and entered into as of
June 4, 1996, by and between PMS and PMG (as amended, supplemented, restated or otherwise modified from time to time, the "Management Services
Agreement") is automatically extended pursuant thereto, the term of this Agreement shall be automatically extended for additional coextensive terms of ten (10) years
each. In the event that the Management Services Agreement is terminated pursuant to its terms, this Agreement shall terminate upon the effective date of termination of said Management Services
Agreement. 

3.    Option Price.    The purchase price for the Option (the "Option Price") is One
Hundred Dollars ($100) and PMG and Shareholder acknowledge receipt of such payment. 

4.    Exercise of Option.    

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

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

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

        4.4   To
the extent that the Stock Option is exercised by PMS, PMS will send PMG a written notice (the "Stock Exercise Notice")
specifying the Stock to be purchased. PMS may designate the Successor Physician(s) who will exercise the Stock Option as many times as PMS elects in its sole discretion. 

        4.5   The
Assets Option and the Stock Option are independent of each other, and can be exercised at different times during the Term. 

        4.6   PMS
may cancel any Assets Exercise Notice or Stock Exercise Notice at any time. 

2

 

        4.7   PMG
and Shareholder shall cooperate with PMS in any due diligence, and PMG and Shareholder shall cause each other Professional Corporation and PC Shareholder to
cooperate with PMS or any Applicable Management Company in any due diligence. 

        4.8   PMG
and Shareholder shall execute and deliver such agreements, documents and instruments at Closing (as defined below) as PMS may request evidencing or relating to the
purchase of Assets or Stock, as the case may be, each in form and substance satisfactory to PMS, including without limitation, the Non-Competition Agreement in the form of  Exhibit C attached
hereto. 

5.    Assignment of the Option.    PMS may elect to assign either the Assets Option or the Stock Option or both to any person, by a
written assignment, signed by both PMS and the assignee, which designates the Assets and/or Stock. The assignee shall agree as a condition of the assignment to be bound by the terms of this Agreement.
Thereafter, only the assignee named in the assignment shall have the right to exercise the applicable Assets Option and/or the Stock Option as to the designated Assets and/or Stock, and that assignee,
rather than PMS, shall enter into a purchase agreement upon exercise of the Assets Option and/or the Stock Option, as applicable. Written notice of any such assignment shall be given by PMS to PMG and
Shareholder within a reasonable time period following execution of any assignment pursuant to this Agreement. When the context so requires in this Agreement, the term "PMS" shall be deemed to refer to
an assignee holding an assignment of an Asset Option or Stock Option, and the terms "party" and "parties" shall be deemed to include that assignee. 

6.    Purchase Price of the Assets or Stock.    

        6.1    Purchase Price.    

        (a)    Assets Purchase Price.    The purchase price for the Assets to be purchased pursuant to the exercise of the
Assets Option shall be $1,000 ("Assets Purchase Price"). The purchase price of any partial purchase of the Assets shall be a pro-rata
percentage of the full Assets Purchase Price. 

        (b)    Stock Purchase Price.    The purchase price for the Stock to be purchased pursuant to the exercise of the Stock
Option shall be $1,000 ("Stock Purchase Price"). The purchase price of less than all of the issued and outstanding Stock is a pro-rata
percentage of the full Stock Purchase Price. 

        6.2    Payment.    For the Assets, PMS shall pay to PMG the Assets Purchase Price at Closing (as defined below) in the
form of immediately available funds transferred by wire to an account at a financial institution designated by PMG. For the Stock, PMS shall cause the Successor Physician to pay the Shareholder the
Stock Purchase Price. 

        6.3    Closing.    The transactions contemplated by this Agreement are to close 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
PMS. 

7.    Additional Obligations of PMG and Shareholder.    

        7.1    Affirmative Covenants.    To the extent that PMG or Shareholder participate in the Practice and own, control,
or use the Assets, PMG and Shareholder shall, and shall cause each other Professional Corporation and PC Shareholder to:: 

        (a)    Conduct of Practice.    Conduct PMG's and each such other Professional Corporation's business efficiently and
without voluntary interruption and preserve all rights, privileges, and franchises held by PMG and each such other Professional Corporation and by PMG's Practice and the practice of each such other
Professional Corporation, including the maintenance of all contracts, copyrights, trademarks, licenses, registrations, etc.; 

        (b)    Use.    Make use of the Assets and the assets of each such other Professional Corporation with reasonable care
to prevent diminution in value of the Practice and the practice of each such 

3

 

other
Professional Corporation and the Assets and the assets of each such other Professional Corporation, and keep the Assets and the assets of each such other Professional Corporation in good repair; 

        (c)    Value.    Perform all acts necessary to maintain, preserve, and protect the Assets and the assets of each such
other Professional Corporation, and maintain fire and extended coverage insurance on the Assets in the amounts and under policies acceptable to PMS and the Applicable Management Companies, and provide
PMS and the Applicable Management Companies with the original policies and certificates at PMS's or the Applicable Management Company's request; 

        (d)    Financing Statements.    Execute and deliver to PMS and the Applicable Management Companies, all financing
statements and other documents that PMS or any Applicable Management Company requests, in order to put third parties on notice of this Agreement; 

        (e)    Access.    Permit PMS and each Applicable Management Company, its representatives, and its agents to inspect
the Assets and the assets of the each other Professional Corporations at any time, and to make copies of records pertaining to the Assets and the assets of each other Professional Corporation, at
reasonable times at the applicable Management Company's request; 

        (f)    Reports.    Furnish PMS and the Applicable Management Companies any reports relating to the Assets and the
assets of each other Professional Corporation at PMS's or at the Applicable Management Company's request; 

        (g)    Defaults.    Notify PMS and the Applicable Management Companies promptly in writing of any default, potential
default, or any development that might have a material adverse effect on the Assets, the assets of each other Professional Corporation, the Stock or the equity interest in any other Professional
Corporation, or the Practice or any practice of any other Professional Corporation, or of any litigation that may have a material adverse effect on the Practice or any practice of any other
Professional Corporation; 

        (h)    Expenses.    Pay all expenses, including attorneys' fees, incurred by PMS in the perfection, preservation,
realization, enforcement, and exercise of its rights under this Agreement, including but not limited to accounting, correspondence, collection efforts, filing, recording, and recordkeeping; 

        (i)    Indemnity.    Indemnify PMS against losses, liabilities, or damages, costs and expenses of any and, including
reasonable attorneys' fees, caused to PMS by reason of its interest in the Assets and/or the Stock; 

        (j)    Taxes.    Pay promptly when due all taxes and assessments owed in connection with the Assets and the assets of
each other Professional Corporation and the Stock and the equity interest in each other Professional Corporation; and 

        (k)    Delivery of Certificates.    Deliver to PMS, all certificates heretofore issued representing all of the shares
of PMG's capital stock held of record or beneficially owned by Shareholder, and each certificate hereafter issued representing any share of the PMG's' capital stock, with each certificate endorsed in
blank for transfer. Notwithstanding the foregoing, this Section 7.1(k) shall only apply in the event that the Credit Succession Agreement is no
longer in effect. 

        7.2    Negative Covenants.    Except as required under the Credit Succession Agreement or under the Loan and Security
Agreement, dated as of the date hereof, among Holdings, the Management Companies, the Professional Corporations and the Lender, without the prior written consent of the 

4

 

PMS
or the Applicable Management Companies, PMG and Shareholder shall not (and shall not permit any other Professional Corporation or PC Shareholder to): 

        (a)    Transfer.    Sell, lease, transfer, or otherwise dispose of the Assets or the assets of any other Professional
Corporation or Stock or the equity interest in any other Professional Corporation; 

        (b)    Debt.    Incur, guarantee, assume or otherwise become liable for any borrowing or increase any existing
indebtedness; or discharge or cancel any debt owed to PMG or any other Professional Corporation; 

        (c)    No Further Hypothecation.    Pledge, hypothecate, encumber, redeem or dispose of the Assets or any of the
assets of any other Professional Corporation, the Stock or any interest therein, or any equity interest in any other Professional Corporation or an interest therein until all of PMG's obligations
under this Agreement have been fully satisfied or the Assets or the Stock has been released; 

        (d)    Location.    Move the Assets from their present locations without the prior written consent of the PMS; 

        (e)    Use.    Use the Assets, or the assets of other Professional Corporations, or the Stock, or any equity interest
in any other Professional Corporations, for any unlawful purpose or in any way that would void any effective insurance; 

        (f)    Name and Location Changes.    Change the name or place of business or use a fictitious business name without
the prior express consent of PMS; and 

        (g)    Issuance of Stock; Change in Ownership; Mergers and Consolidation.    Permit any issuance of Stock, any equity
interest in any other Professional Corporation, other equity, or debt; permit any change in the composition or respective percentage ownership of PMG or any other Professional Corporation; permit PMG
or any other Professional Corporation to be merged, consolidated or otherwise reorganized with or into any other corporation, partnership, trade, business, or the like; amend or otherwise modify its
articles of incorporation and bylaws; dissolve; or enter into any agreement with any person to do any of the foregoing. 

8.    Confidentiality.    The parties shall use all good faith efforts to keep the contents of this Agreement and all other aspects
of the negotiations preceding execution of this Agreement confidential. Unless required by law, PMS, PMG and Shareholder shall not disclose the contents of this Agreement or the negotiations leading
to this Agreement to third parties without the prior written consent of the other party. PMS shall ensure that all of the assignees likewise comply with the obligations of confidentiality imposed by
this Section, except that PMS and the assignees may disclose the contents of such to their respective agents, representatives, contractors, and
employees to the extent necessary to exercise their respective rights or perform their respective obligations hereunder. 

9.    General.    

        9.1    Compliance with Law.    PMG and Shareholder shall, and shall cause each other Professional Corporation to,
comply with all applicable requirements of the Joint Commission on the Accreditation of Healthcare Organizations, the Medicare and Medicaid programs, applicable state law and regulations, and other
licensing and accreditation authorities. 

        9.2    Relationship of Parties.    In the exercise of their respective rights and the performance of their respective
obligations under this Agreement, PMG and Shareholder, on the one hand, and PMS (or any assignee), on the other hand, are acting in the capacity of the grantor and grantee of an option to purchase all
or a portion of the Assets and/or Stock, and nothing in this Agreement is intended nor 

5

 

shall
be construed to create between the parties an employer/employee relationship, a partnership or joint venture relationship or a landlord/tenant relationship. 

        9.3    Assignment.    All of PMS's rights and duties under this Agreement may be assigned or delegated by PMS or
Prospect Medical Holdings, Inc., a Delaware corporation ("Holdings"), including but not limited to an assignment to Lender;  provided,
however, that PMS or Holdings, shall give written notice of any such assignment to PMG and
Shareholder within a reasonable time period. Notwithstanding any other provision of this Agreement, neither this Agreement nor the rights and duties of this Agreement may be assigned or delegated by
PMG or Shareholder. This Agreement binds the successors, heirs, and authorized assignees of the parties. 

        9.4    Entire Agreement.    Except as expressly provided in this Agreement to the contrary, this Agreement, including
its incorporated exhibits, constitutes the entire agreement between the parties with respect to the Option, and supersedes all other and prior agreements on the same subject, whether written or oral
and contains all of the covenants and agreements between the parties with respect to the subject matter hereof. Except as expressly provided in this Agreement to the contrary, each party to this
Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any other party hereto, or by anyone acting on behalf of any party hereto,
that are not embodied herein, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding. This Agreement amends and restates the Prior Assignable Option
Agreement in its entirety. The parties hereto acknowledge and agree that this Agreement that the rights and obligations under the Prior Agreement are in all respects continuing under this Agreement
with only the terms being modified from and after the date hereof as provided in this Agreement. 

        9.5    Counterparts.    This Agreement, and any amendments hereto, may be executed in counterparts, each of which
shall constitute an original document, but which together shall constitute one and the same instrument. 

        9.6    Headings.    The section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement. 

        9.7    Notices.    Any notices required or permitted to be given hereunder by any party to another shall be in writing
and shall be deemed delivered upon personal delivery, twenty-four (24) hours following deposit with a courier for overnight delivery or seventy two (72) hours following
deposit in the
U.S. Mail, registered or certified mail, postage prepaid, return-receipt requested, addressed to the parties at the following addresses or to such other addresses as the parties may specify in
writing: 

	If to a PMG

Or Shareholder:	 	c/o Prospect Medical Group, Inc.

1920 East 17th Street, Suite 200

Santa Ana, California

Attention: Jacob Y. Terner, M.D.
	

If to PMS:	
 	

c/o Prospect Medical Holdings, Inc.

6083 Bristol Parkway, Suite 100

Culver City, California 90230

Attention: Stewart Kahn, Executive Vice President

        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. 

6

 

        9.10    Severability.    If any provision of this Agreement is held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions will nevertheless continue in full force and effect, unless such invalidity or unenforceability would defeat an essential business purpose of this Agreement. 

        9.11    Fees and Expenses.    PMS, PMG, and Shareholders each shall bear their own expenses, including, without
limitation, attorneys' and accountants' fees, incurred in connection with the preparation of this Agreement and the transactions contemplated hereby. 

        9.12    Exhibits and Schedules.    All exhibits and schedules attached to this Agreement are incorporated herein by
this reference and all references herein to "Agreement" shall mean this Agreement together with all such exhibits and schedules. 

        9.13    Time of Essence.    Time is expressly made of the essence of this Agreement and each and every provision
hereof of which time of performance is a factor. 

        9.14    Dispute Resolution.    In the event the parties hereto are unable to resolve any dispute in connection with
this Agreement, the parties may mutually agree to arbitrate as set forth below. 

        (a)   There
shall be one arbitrator. If the parties shall fail to select a mutually acceptable arbitrator within ten (10) days after the demand for arbitration is
mailed, then the parties stipulate to arbitration before a retired judge sitting on the Los Angeles, California, Judicial Arbitration Mediation Services (JAMS) panel. 

        (b)   The
substantive law of the State of California shall be applied by the arbitrator. 

        (c)   Arbitration
shall take place in Los Angeles, California, unless the applicable Professional Corporation and a majority of the other parties otherwise agree. As soon as
reasonably practicable, a hearing with respect to the dispute or matter to be resolved shall be conducted by the arbitrator. As soon as reasonably practicable thereafter, the arbitrator shall arrive
at a final decision, which shall be reduced to writing, signed by the arbitrator and mailed to each of the parties and their legal counsel. 

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

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

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

        9.15    Attorneys' Fees.    Should any of the parties hereto institute any action or procedure to enforce this
Agreement or any provision hereof (including without limitation, arbitration), or for damages by reason of any alleged breach of this Agreement or of any provision hereof, or for a declaration of
rights hereunder (including, without limitation, by means of arbitration), the prevailing party in any such action or proceeding shall be entitled to receive from the other party all costs and
expenses, including without limitation reasonable attorneys' fees, incurred by the prevailing party in connection with such action or proceeding. 

        9.16    Further Assurances.    The parties shall take such actions and execute and deliver such further documentation
as may reasonably be required in order to give effect to the transactions contemplated by this Agreement and the intentions of the parties hereto. 

        9.17    Rights Cumulative.    The various rights and remedies herein granted to the respective parties hereto shall be
cumulative and in addition to any other rights any such party may be entitled to under law. The exercise of one or more rights or remedies by a party shall not impair the right of such party to
exercise any other right or remedy, at law or equity. 

        9.18    Spousal Consent.    Shareholder shall cause his spouse to execute a Spousal Joinder and Consent, substantially
in the form of Exhibit A attached hereto, signifying such spouse's consent to this Agreement and such spouse's agreement that any rights that
such spouse may have, as a result of a community property or other interest in the Stock, shall be subject to the provisions of this Agreement. It is intended by this Agreement that Shareholder shall
subject his entire interest in the Stock to the terms of this Agreement, irrespective of any community property or other interest of his spouse. 

<The remainder of the page is intentionally blank.> 

7

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

	"PMS"	 	"PMG"
	

PROSPECT MEDICAL SYSTEMS, INC., a Delaware corporation	
 	
PROSPECT MEDICAL GROUP, INC., a California professional corporation
	

By:	
 	

/s/  JACOB Y. TERNER, M.D.      
	
 	

By:	
 	

/s/  JACOB Y. TERNER, M.D.      

	Name:	 	Jacob Y. Terner, M.D.	 	Name:	 	Jacob Y. Terner, M.D.
	 	 	
	 	 	 	

	Title:	 	Chief Executive Officer	 	Title:	 	Chief Executive Officer
	 	 	
	 	 	 	

	

 	
 	

 	
 	
"SHAREHOLDER"
	

 	
 	

 	
 	
JACOB Y. TERNER
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	/s/  JACOB Y. TERNER, M.D.      
 Jacob Y. Terner, individually

SPOUSAL JOINDER AND CONSENT  

        I am the spouse of Jacob Y. Terner, M.D., a shareholder (the "Shareholder") of Prospect Medical
Group, Inc., a California professional medical corporation ("PMG"). To the extent that I have any interest in any of the Assets (as that term is
defined in the Amended and Restated Assignable Option Agreement (the "Assignable Option Agreement"), entered into as of this date, by and among
Shareholder, PMG and Prospect Medical Systems, Inc., a Delaware corporation ("PMS"), I hereby join in the Assignable Option Agreement and agree
to be bound by its terms and conditions to the same extent as my spouse. I have read the Assignable Option Agreement, understand its terms and conditions, and to the extent that I have felt it
necessary, have retained independent legal counsel to advise me concerning the legal effect of the Assignable Option Agreement and this Spousal Joinder and Consent. 

        I
understand and acknowledge that PMS is significantly relying on the validity and accuracy of this Spousal Joinder and Consent in entering into the Assignable Option Agreement. 

Executed
this [        ]th day of September, 2004. 

	Signature:	/s/  SANDRA W. TERNER      
	 	 

Printed or Typed Name: Sandra W. Terner 

EXHIBIT A  

ASSETS  

        1.     All
contracts and agreements, including all payor contracts, vendor contracts, loan agreements, leases and subleases. 

        2.     All
risk pool or other incentive arrangement payments relating to the Practice, including hospital incentive funds, and any capitation advances to physicians. 

        3.     All
cash, bank balances, monies in possession of any bank, other cash items, marketable securities of PMG and prepaid deposits relating to the Practice. 

        4.     All
accounts receivable of PMG ("Accounts Receivable") relating to the Practice. As used herein, "Accounts Receivable"
shall include all rights to payment for goods or services rendered, whether or not yet earned by performance, all other obligations and receivables from others no matter how evidenced relating to the
Practice, including purchase orders, notes, instruments, drafts and acceptances and all guarantees of the foregoing and security therefor, relating to the Practice. 

        5.     All
supplies and inventory relating to the Practice. 

        6.     All
patient records, files and X-rays relating to the Practice. 

        7.     All
of PMG's goodwill relating to the Practice, which may include location goodwill, name recognition goodwill, patient allegiance, etc. 

        8.     All
business, financial and accounting records and books of account relating to the Practice, exclusive of PMG's Articles, Bylaws, corporate minutes, stock shares and
general ledger. 

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

        10.   All
of PMG's furniture, fixtures, leasehold improvements, machinery, equipment, inventories, supplies and other like tangible personal property used in the Practice. 

        11.   All
trademarks, trade names, fictitious business names, copyrights, logos, licenses, ownership interests in telephone numbers at the Practice, or related items of PMG
that in any way pertain to the Practice. 

EXHIBIT B  

STOCK  

        Stock of PMG has been pledged to Lender pursuant to the terms of that certain Pledge Agreement, dated as of the September 27, 2004 executed in favor of
Lender by Jacob Y. Terner, as the same may be amended, supplemented, restated or otherwise modified from time to time, and as such pledge has been reaffirmed pursuant to the term of that certain
Credit Succession Agreement, dated as of September 27, 2004, by and among, Shareholder, PMS, SMM, PHR, the Professional Corporations, the
PC Shareholders and Lender, as the same may be amended, supplemented, restated or otherwise modified from time to time. 

EXHIBIT C  

NON-COMPETITION AGREEMENT  

        THIS NON-COMPETITION AGREEMENT ("Agreement") is made as of this    th day of  
[                        ], and is effective as
of                        ,            , by and between Prospect
Medical Systems, Inc.,
a Delaware. corporation ("Systems"), Prospect Medical Group, Inc., a California professional corporation ("PC"), Jacob Y. Terner, M.D. ("Professional"),
and                        ("Successor
Physician"). 

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

RECITALS  

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

        B.    On                        ,
    ,
Systems exercised its Option to designate Successor Physician to acquire the stock or assets of PC under the terms of that certain
Assignable Option Agreement, dated September 27, 2004 by and between Systems, PC and Professional (as the same may be amended, supplemented, restated or otherwise modified from time to time,
the "Assignable Option Agreement"). 

        C.    Pursuant
to the terms of System's Option, Professional is to sell either the assets or the stock of PC in accordance with the terms of that certain acquisition agreement
by and between PC, Professional and Successor Physician ("Acquisition Agreement"). 

        D.    In
consideration for Professional's sale of PC's stock or assets to Successor Physician, the parties desire to enter into this Agreement. 

AGREEMENT  

        NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows. 

1.    Professional's Covenants.    As a material inducement for Successor Physician to acquire the stock or assets of PC from
Professional and contingent on the full and faithful performance of the obligations of the parties under the Acquisition Agreement, for a period of twenty-four (24) months
commencing as of the date when Professional sells, hypothecates, or otherwise transfers (i) his stock in the PC or (ii) a material portion of the assets of the PC (the "Effective Date"),
Professional covenants as follows: 

        1.1   That
Professional will not, directly or indirectly (whether as a sole proprietor, partner, stockholder, director, officer, employee, independent contractor or in any
other capacity as principal or agent) (i) establish, operate or provide professional medical services within ten (10) miles of any location at which PC conducts business or any location
at which other professional corporations managed by Systems as of the Effective Date conduct business; or (ii) compete with Systems in the provision of the same services or services
substantially similar to those services provided by Systems. Professional shall be deemed to compete with Systems if Professional provides to any medical association(s) or group(s) of physicians
within ten (10) miles of any location at which PC conducts business during the term of this Agreement any services that are the same or substantially similar to any services provided by Systems
pursuant to the terms of its management services agreements. 

        1.2   That
Professional will not, directly or indirectly, (whether as a sole proprietor, partner, stockholder, director, officer, employee, independent contractor or in any
other capacity as principal or agent) (i) hire or induce any party to recruit or hire any person who is an employee or independent contractor of PC or Systems or any of their affiliates;
(ii) whether for himself or any other person or entity, call upon, solicit, divert or take away, or attempt to solicit, call upon, divert or take away any customers, business or clients of PC
or Systems or their affiliates (including, without limitation, any 

third
party payors); (iii) solicit, or induce any party to solicit, any contractors of PC or Systems or their affiliates, to enter into the same or a similar type of contract with any other
party; (iv) for himself or for any other entity, solicit, divert or take away or attempt to solicit, divert or take away any of PC's patients; or (v) disrupt, damage, impair or interfere
with the business of PC or Systems or their affiliates. 

        These
covenants on the part of Professional shall be construed as an agreement independent of any other provision in this Agreement; and the existence of any claim or cause of action of
Professional against PC or Systems, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by PC or Systems of these covenants. 

        It
is agreed by the parties hereto that if any portion of the covenants specified in subparagraphs 1.1 and 1.2 above are held to be unreasonable, arbitrary or against public policy, the
covenants herein shall be considered divisible both as to time and geographic area; and each month of the specified period shall be deemed a separate period of time, and each quarter mile shall be
deemed a separate geographic area so that the lesser period of time or geographic area shall remain effective as along as the time or geographic area are not unreasonable, arbitrary, or against public
policy. The parties hereto agree that, in the event any court determines the specified time period or the specified geographic area to be unreasonable, arbitrary or against public policy, a lesser
time period or geographic area which is determined to he reasonable, nonarbitrary and not against public policy may be enforced against Professional, where such provisions shall be deemed reformed to
the maximum time or geographic or other limitations permitted by applicable law, as determined by such court in such action. 

        The
parties agree that the remedy at law for any breach of such covenant or of the related covenants set forth herein would be inadequate, and that therefore PC, Systems or any other
person entitled to enforce such covenants shall be entitled to seek injunctive relief thereon in addition to its rights to monetary damages. 

2.    Confidentiality    

        2.1    PC's Confidential and Proprietary Information.    In the course of Professional's engagement by PC,
Professional has had access to certain confidential or proprietary information relating to the patients and operations of PC including, without limitation, patient lists, training material, brochures,
practice development aids, techniques and other trade secrets, which information will become the confidential and proprietary information of PC (collectively, the "PC's Confidential and Proprietary
Information"). Professional shall maintain all of PC's Confidential and Proprietary Information in the strictest confidence and shall not directly or indirectly use such information at any time, or
divulge any of PC's Confidential and Proprietary Information at any time to any third parties, other than (i) PC, Systems or their respective representatives who have a reasonable need for such
information and who have similarly agreed to hold such information in confidence, without the express prior written consent of PC; (ii) as may be reasonably necessary in connection with any
litigation or dispute in relation to Professional's prior operation of the practice through Practice; or (iii) upon court order to do so. Professional shall not remove from any of PC's practice
sites or make copies or other reproductions of any of PC's Confidential and Proprietary Information without the express prior written consent of PC. Upon the Effective Date of this Agreement,
Professional shall immediately return any and all original documents and materials containing any of PC's Confidential and Proprietary Information, including any and all copies or other reproductions
thereof, to PC. 

        2.2    Systems' Confidential and Proprietary Information.    

        2.2.1 Professional
recognizes the proprietary interest of Systems in any of Systems' Confidential and Proprietary Information (as hereinafter defined). Professional
acknowledges and agrees that any and all Confidential and Proprietary Information of Systems communicated to, learned of, or otherwise acquired by Professional in the course of Professional's
engagement by the PC shall be the property of Systems. Professional further acknowledges and understands that Professional's use or disclosure of Systems' Confidential and Proprietary Information will
result in irreparable injury and damage to Systems. As used herein, "Systems' Confidential and Proprietary Information" 

means
all trade secrets and other confidential and/or proprietary information of Systems and its affiliates, including information derived from reports, investigations, research, work in progress,
codes, marketing and sales programs, financial projections, costs summaries, pricing formula, contract analysis, financial information, projections, confidential filings with any state or federal
agency, and all other confidential concepts, methods of doing business, ideas, materials or information (other than the PC's patient records) of Systems whether prepared for, by or on behalf of
Systems or its employees, officers, directors, agents, representatives, or consultants. 

        2.2.2 Professional
acknowledges and agrees that Systems is entitled to prevent the disclosure or improper use of any of Systems' Confidential and Proprietary Information.
Professional agrees at all times to hold in strictest confidence and not to disclose to any person, firm or corporation and not to use, except in the pursuit of the business of PC or Systems, Systems'
Confidential and Proprietary Information, without the prior written consent of Systems; unless (i) such information becomes known or available to the public generally through no wrongful act of
Professional or (ii) disclosure is required by law or the rule, regulation or order of any governmental authority under color of law; provided, that prior to disclosing any of Systems'
Confidential and Proprietary Information pursuant to this clause (ii), Professional shall, if possible, give prior written notice thereof to Systems and provide Systems with the opportunity to
contest such disclosure. Professional shall take all necessary and proper precautions against disclosure of any of Systems' Confidential and Proprietary Information to unauthorized persons. Upon
execution of this Agreement, Professional shall cease all use of any of Systems' Confidential and Proprietary Information and shall execute such documents as may be reasonably necessary to evidence
abandonment of any claim thereto. 

        2.2.3 Upon
the execution of this Agreement, and at any time upon the request of Systems, Professional will promptly deliver or cause to be delivered to Systems all
documents, data and other information in their possession that contains or is related to any of Systems' Confidential and Proprietary Information regarding Systems or its affiliates. Professional
shall not take or retain any documents or other information, or any reproduction or excerpt thereof, containing any of Systems' Confidential and Proprietary Information. 

3.    Professional's Representation.    Professional specifically acknowledges, represents, and warrants that (i) each of
Professional's covenants set forth in this Agreement are being made in connection with the Acquisition Agreement; (ii) such covenants are reasonable and necessary to protect the legitimate
interests of Systems, PC and their respective affiliates; and (iii) Successor Physician would not have entered into the Acquisition Agreement in the absence of such restrictions. 

4.    Miscellaneous.    

        4.1    Successors and Assigns.    This Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective heirs (as applicable), legal representatives, and permitted successors and assigns. No party may assign this Agreement or the rights, interests or obligations hereunder; provided,
however, each of Systems and PC may assign any or all of its respective rights and interests hereunder to one or more of its respective affiliates. Any assignment in contravention of this Section
shall be null and void. 

        4.2    Counterparts.    This Agreement, and any amendments thereto, may be executed in counterparts, each of which
shall constitute an original document, but which together shall constitute one and the same instrument. 

        4.3    Headings.    The section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement. 

        4.4    Amendment.    This Agreement may not be amended except by a writing executed by all parties. 

        4.5    Time of Essence.    Time is expressly made of the essence of this Agreement and each and every provision hereof
of which time of performance is a factor. 

        4.6    Notices.    Any notices required or permitted to be given hereunder by any party to the other shall be in
writing and shall be deemed delivered upon personal delivery; twenty-four (24) hours following deposit with a courier for overnight delivery; or five (5) days following
deposit in the U.S. Mail, registered or certified mail, postage prepaid, return-receipt requested, addressed to the parties at the following addresses or to such other addresses as the parties may
specify in writing: 

	If to Professional:	 	Jacob Y. Terner, M.D.	 	 
	 	 	          
          
          
	 	 
	

If to Systems:	
 	

Prospect Medical Systems, Inc.	
 	

 
	 	 	          
          
          
	 	 
	

If to PC:	
 	

Prospect Medical Group, Inc.	
 	

 
	 	 	          
          
          
	 	 
	

If to Successor Physician:	
 	

 	
 	

 
	 	 	          
          
          
	 	 

        4.7    Governing Law.    This Agreement shall be governed by and construed in accordance with the laws of the State of
California without reference to the conflict of laws provisions thereof. 

        4.8    Injunctive Relief.    The parties hereto acknowledge and agree that a breach by Professional of this Agreement
will cause irreparable damage to Systems or PC, as applicable, the exact amount of which will be difficult to ascertain, and that remedies at law for any such breach will be inadequate. Accordingly,
Professional agrees that if Professional breaches this Agreement, then Systems and PC, as appropriate, shall be entitled to injunctive relief, and Professional agrees not to assert in any proceeding
that Systems or PC, as applicable, has an adequate remedy at law. Professional shall pay the reasonable fees and expenses, including attorneys fees, incurred by Systems, PC or any successor or assign
in enforcing this Agreement. 

        4.9    Severability.    If any provision or portion of this Agreement is held by a court of competent jurisdiction to
be invalid or unenforceable, the remainder of this Agreement will nevertheless continue in full force and effect and shall not be invalidated or rendered unenforceable or otherwise adversely affected,
unless such invalidity or unenforceability would defeat an essential business purpose of this Agreement. Without limiting the generality of the foregoing, if the provisions of this Agreement shall be
deemed to create a restriction, which is unreasonable as to either duration or geographical area or both, the
parties agree that the provisions of this Agreement shall be enforced for such duration and in such geographic area as any court of competent jurisdiction may determine to be reasonable. 

        4.10    Attorneys' Fees.    Should any of Systems, PC or Professional institute any action or procedure to enforce
this Agreement or any provision hereof, or for damages by reason of any alleged breach of this Agreement or of any provision hereof, or for a declaration of rights hereunder (including without
limitation arbitration), the prevailing party(ies) in any such action or proceeding shall be entitled to receive from the other party all costs and expenses, including without limitation reasonable
attorneys' fees, incurred by the prevailing party(ies) in connection with such action or proceeding. 

        4.11    Professional's Practice of Medicine.    Notwithstanding anything to the contrary in this Agreement, nothing
herein is meant to limit or restrict Professional's ability to practice medicine as a physician within any radius, including within 10 miles of any PC location, in the State of California. 

[The
remainder of the page is intentionally blank.] 

        IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. 

	"Systems"

PROSPECT MEDICAL SYSTEMS, INC.

a Delaware corporation	 	 
	

By:	
 	

 	
 	

 
	 	 	
 R. Stewart Kahn	 	 
	Title:	 	Executive Vice President	 	 
	

"PC"

PROSPECT MEDICAL GROUP, INC.,

a California professional corporation	
 	

 
	

By:	
 	

 	
 	

 
	 	 	
 Jacob Y. Terner, M.D.	 	 
	Title:	 	Sole Shareholder	 	 
	

"PROFESSIONAL"

JACOB Y. TERNER, M.D.	
 	

 
	

 	
 	

 	
 	

 
	
 Jacob Y. Terner, M.D., as an individual	 	 
	

"SUCCESSOR PHYSICIAN"	
 	

 
	

 	
 	

 
	
	 	 

QuickLinks

Exhibit 10.196

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