Exhibit 2.3

AGREEMENT OF PURCHASE AND SALE OF ASSETS

Among

JAMES DANIEL,M.D. & DANA EISENMAN, M.D. MEDICAL CORPORATION,

a California professional corporation

“Purchaser”

and

PROSPECT MEDICAL GROUP, INC.

a California professional corporation

“Seller”

and

PROSPECT HEALTH SOURCE MEDICAL GROUP, INC.,

a California professional corporation

“Seller”

and

PROSPECT MEDICAL SYSTEMS, INC.,

a Delaware corporation

“Seller”

TABLE OF CONTENTS

1.	PURCHASE AND SALE OF ASSETS; ASSUMED LIABILITIES; CONTINGENCY AS TO PORTION OF CLINIC LEASE
	1.1	Acquisition of Assets
	1.2	Assumed Liabilities
	1.3	Contingency as to Clinic Lease
2.	PURCHASE PRICE OF ASSETS:
	2.1	Consideration
	2.2	Fair Market Value
3.	REPRESENTATIONS AND WARRANTIES OF SELLER
	3.1	Organization
	3.2	Authorization
	3.3	No Consent Required; No Violations
	3.4	Title to Assets
	3.5	Inventory; Furniture Fixtures and Equipment
	3.6	Contracts
	3.7	No Litigation and Insurance
	3.8	Violation of Laws
	3.9	No Brokers or Finders
	3.10	Employees
	3.11	Confidentiality
	3.12	No Untrue Statements
4.	REPRESENTATIONS AND WARRANTIES OF PURCHASER
	4.1	Organization
	4.2	Authority
	4.3	No Litigation and Insurance
	4.4	No Brokers or Finders
	4.5	No Violation of Other Obligations
	4.6	No Consent Required
	4.7	No Untrue Statements
5.	COVENANTS
	5.1	Conduct of Business
	5.2	No Shopping
6.	CONFIDENTIAL INFORMATION; PUBLICITY
	6.1	Confidential Information
	6.2	Publicity

i

7.	CLOSING; CONDITIONS TO OBLIGATIONS TO CLOSE
	7.1	Closing
	7.2	Deliveries by Seller
	7.3	Deliveries by Purchaser
	7.4	Conditions to Purchaser’s Obligations
	7.5	Conditions to Seller’s Obligation
8.	CANCELLATION OF ASSET PURCHASE AGREEMENT
	8.1	Jeopardy
	8.2	Exercise of Cancellation Option
9.	MISCELLANEOUS
	9.1	Risk of Loss
	9.2	No Liability of Seller for Disputes over Inventory, F&E and Allocation of Clinic Lease Square Footage for the Robertson Clinic
	9.3	No Third Party Beneficiaries
	9.4	Entire Agreement
	9.5	Successors and Assigns
	9.6	Counterparts
	9.7	Headings
	9.8	Notices
	9.9	Governing Law
	9.10	Amendment
	9.11	Specific Performance
	9.12	Severability
	9.13	Fees and Expenses
	9.14	Exhibits and Schedules
	9.15	Survival of Representations and Warranties
	9.16	Time of Essence
	9.17	Waivers
	9.18	Attorneys’ Fees
	9.19	Arbitration
	9.20	Construction
	9.21	Further Assurances
EXHIBITS
1.1	Assets
1.1(a)	Prospect Health Source Medical Group, Inc. Exclusive Primary Care
	Physician Services Agreement
1.3	Assumed Liabilities
7.2(a)	Bill of Sale/Assignment and Assumption Agreement
7.2(b)	Sublease
SCHEDULES
3.3	Consents
3.5	Inventory and Furniture, Fixtures, and Equipment

ii

3.7	Litigation
3.8	Violation of Law
3.10	Prospect Employees Through The Effective Date
4.8	Employees Purchaser Will Retain From The Effective Date Through The Closing Date

iii

AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS

THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS (“Asset Purchase Agreement”) is made and entered into as of the 1st day of July, 2001, by and among James Daniel, M.D. & Dana Eisenman, M.D. Medical Corporation, a California professional corporation (“Purchaser”), Prospect Medical Group, Inc., a California professional corporation (“PMG”), Prospect Health Source Medical Group, Inc., a California professional corporation (“PHSMG”) and Prospect Medical Systems, Inc., a Delaware corporation (“PMS”) (PMG, PHSMG, and PMS are collectively referred to herein as “Seller”).

R E C I T A L S

This Asset Purchase Agreement is made with reference to the following facts and circumstances:

A.PMG is a professional medical corporation which operates as an independent practice association.

B.PHSMG is a professional medical corporation which operates as a medical group and an independent practice association.

C.PMS, by means of a management services agreement with PHSMG (“Management Services Agreement”), is the manager of the administrative portions of the independent practice association functions and medical practice operational functions of PHSMG.

D.PMG, PHSMG and PMS acquired all the assets of a clinic located at 150 North Robertson Blvd., Suite 350, Beverly Hills, California (the “Robertson Clinic”).

E.PHSMG acquired all patient records, all business, financial and accounting records, physician employment contracts and all other professional assets of the Robertson Clinic.

F.PMS, by means of an assignment from PMG, acquired all furniture, fixtures and equipment of the Robertson Clinic and other nonprofessional assets of the Robertson Clinic (“FF&E Assets”) and is the named tenant in the real property lease for the office space for the Robertson Clinic (the “Clinic Lease”).

G.PHSMG provides services to the Robertson Clinic in connection with its function as an independent practice association, including the contracting of providers for the Robertson Clinic.

1

H.At the time of Seller’s acquisition of the Robertson Clinic through and including April 31, 2001, the Robertson Clinic consisted of two medical practices, namely the Sunset practice (the “Sunset Practice”) and the Lipper practice (the “Lipper Practice”).  The Sunset Practice generally refers to the medical practices of Dr. James Daniel and Dr. Dana Eisenman.  The Lipper Practice refers to the individual practice of Dr. Authur Lipper.  In addition, though not a part of the Sunset Practice or the Lipper Practice, space in the Robertson Clinic was rented to David M. Frisch, M.D., who had his own individual practice at the Robertson Clinic.

I.On May 1, 2001 Seller sold all the assets of the Robertson Clinic relating to the Lipper Practice to David M. Frisch, M.D., a Medical Corporation, the combined practices of Dr. Lipper and Dr. Frisch are hereinafter referred to as the “Lipper/Frisch Practice.”

J.The Sunset Practice occupies approximately 2,662 square feet of the total 5,672 square feet of rental space under the Clinic Lease.  The Lipper/Frisch Practice occupies the remaining 3,010 square feet.

K.Seller desires to sell the assets and assign the liabilities of the Sunset Practice to Purchaser, and Purchaser desires to acquire such assets and assume such liabilities, on the terms and conditions set forth in this Asset Purchase Agreement.

L.Seller and Purchaser additionally desire to have PHSMG continue its independent practice association services of contracting with certain existing providers of the Sunset Practice; provided however, that Seller and Purchaser agree that PHSMG shall terminate the Management Services Agreement for the Robertson Clinic as it pertains to the Sunset Practice, as Purchaser will assume management of the Sunset Practice.

NOW, THEREFORE, in consideration of the covenants and conditions contained herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.PURCHASE AND SALE OF ASSETS; ASSUMED LIABILITIES; CONTINGENCY AS TO PORTION OF CLINIC LEASE

1.1Acquisition of Assets.  On the “Closing Date” (as defined in Section 7.1 herein), Seller shall sell and assign to Purchaser, and Purchaser shall acquire from Seller, all of the assets of the Sunset Practice listed in Exhibit 1.1 hereto (“Assets”).  Additionally, to the extent Seller has any interest on the Closing Date in the furniture, fixtures and equipment listed in Exhibit 3.5(a) hereto currently being used in the Sunset Practice, Seller shall sell and assign such interest to Purchaser.

1.2Assumed Liabilities.  On the Closing Date, Purchaser shall assume and become responsible for all of the Assumed Liabilities (as hereinafter defined) which accrued on and after July 1, 2001 (the “Effective Date”).  In no event shall Purchaser assume liabilities of Seller which accrued prior to the Effective Date.  As used herein, “Assumed

2

Liabilities” shall mean the liabilities and obligations of the Sunset Practice as set forth on Exhibit 1.3 hereof, including but not limited to, 2,662 square feet of the Clinic Lease relating to the Sunset Practice as more fully set forth in the Sublease attached hereto as Exhibit 7.2(b) (the “Sublease”) and Seller’s compensatory obligation to those employees set forth on Schedule 3.10 hereof.

1.3Contingency as to Clinic Lease.  Commencing with the Effective Date and continuing through and including November 1, 2003, Seller has the option to terminate the entire Clinic Lease (all the approximately 5,672 square feet) pursuant to Section 2 of the Second Lease Addendum of the Clinic Lease by giving sixty days notice to the landlord thereunder and paying the liquidated damages amounts described therein.  Should Seller elect to terminate the Clinic Lease, thereby terminating Purchaser’s Sublease, Seller shall give Purchaser sixty days advance notice of the date of termination.

2.PURCHASE PRICE OF ASSETS:

2.1Consideration.  Subject to the terms and conditions of this Asset Purchase Agreement, in reliance on the representations, warranties and covenants of the parties hereto and in full consideration of the sale, assignment and delivery of the Assets, the purchase price shall be One Hundred Dollars ($100.00), which will be payable in cash by Purchaser to Seller upon the Closing Date.

2.2Fair Market Value.  The parties agree that the Purchase Price, together with the Assumed Liabilities, reflects the fair market value of the Assets.  The parties agree no consideration is or will be paid for the value of any referrals (direct or indirect) to or from Purchaser, Seller, or any of their respective affiliates.

3.REPRESENTATIONS AND WARRANTIES OF SELLER:

Seller hereby represents and warrants to Purchaser that the statements contained in this Article 3 will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Asset Purchase Agreement throughout this Article 3), except as otherwise specifically set forth in the schedules attached hereto and initialed by the parties.  The schedules are numbered and lettered to correspond to the numbered and lettered sections contained in this Article 3.

3.1Organization.  PMG and PHSMG are California professional corporations duly organized, validly existing and in good standing under the laws of the State of California.   PMS is a Delaware corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Seller has all requisite authority to own, lease, and operate its business and to carry on its business as currently being conducted.  Seller is duly qualified to transact its business in the State of California.

3.2Authorization.  Seller has full right, power, authority and legal capacity, to sell the Assets, to execute and deliver this Asset Purchase Agreement, and to carry out the

3

transactions contemplated hereby and, to Seller’s knowledge, no other consent is required.  Seller’s execution and delivery of this Agreement and consummation of the transactions contemplated by this Agreement have been duly approved by the board of directors.  All action on the part of Seller necessary for the authorization, execution, delivery and performance of this Asset Purchase Agreement and the consummation of the transactions contemplated hereby has been or will be taken prior to the Closing Date, and this Asset Purchase Agreement (including exhibits, schedules and the ancillary agreements) constitutes the legal, valid and binding obligation of Seller, enforceable in accordance with its terms, except as enforceability may be restricted, limited or delayed by applicable bankruptcy, insolvency, fraudulent conveyance or other laws affecting creditor’s rights generally and except as enforceability is subject to general principles of equity.  At the Closing, Purchaser will acquire good title to the Assets free and clear of all security interests, liens, claims, encumbrances, covenants and restrictions of any nature whatsoever (collectively referred to as “Liens”, and, to Seller’s knowledge, no other consent is required).  Other than this Asset Purchase Agreement and the transactions contemplated hereby, there is no contract, commitment or agreement between Seller and any other person with respect to the disposition of any of the Assets.

3.3No Consent Required; No Violations.  Except as set forth in Schedule 3.3, to Seller’s knowledge, neither the execution of this Asset Purchase Agreement by Seller, nor the performance by Seller of Seller’s obligations hereunder requires the consent of any third party which has not been obtained and delivered to Purchaser.  Except as set forth in Schedule 3.3, to Seller’s knowledge, neither this Asset Purchase Agreement nor any of the transactions contemplated hereunder violates or shall violate any lease, contract, document, understanding, agreement or instrument to which Seller is a party or by which Seller may be bound.  Except as set forth in Schedule 3.3, to Seller’s knowledge, neither this Asset Purchase Agreement nor any of the transactions contemplated hereunder violates, or shall violate, conflict with, result in a default under or breach the articles of incorporation or bylaws of the Seller.

3.4Title to Assets.  To the knowledge of Seller, all of the Assets are (i) in good repair and operating condition, (ii) free from any material defects, except normal wear and tear, and (iii) fit for the purposes for which they are being used.  Seller has good and marketable title to all property and assets that it purports to own or lease. Seller has not mortgaged, encumbered or placed a lien of any kind on the Assets, and Seller has not taken any action which would impair or interfere with the use of the Assets in the conduct of the business of Seller.  At the Closing, Seller shall deliver title to the Assets to Purchaser free and clear of any Liens placed on such Assets by Seller.

3.5Inventory; Furniture, Fixtures and Equipment.  On the Closing Date, the  inventory, furniture, fixtures, and equipment relating to the Sunset Practice which shall be transferred to Purchaser pursuant to this Agreement shall consist of those items identified in Schedule 3.5.

4

3.6Contracts.

(a)Seller has allowed Purchaser access to inspect and review true and complete copies of all contracts, agreements, leases, documents, written understandings, instruments, loan documents and security agreements concerning the Assets or any Liens against the Assets in excess of $5,000, to which the Robertson Clinic, specifically the Sunset Practice, is a party.

(b)Except as set forth in Schedule 3.6, there are no guarantees by Seller of any obligations or indebtedness whatsoever for any third person or entity.

(c)Seller has not received any notice of any asserted claim of default, breach or violation of, any such contract referred to in Section 3.6 which failure of performance or default would be materially adverse to the Assets except as set forth in Schedule 3.6.

3.7No Litigation and Insurance.  There is no pending litigation, judgment, appeal, investigation or asserted claim (“Action”) or, to Seller’s best knowledge, any threatened Action relating to the Assets, except for the Actions described on Schedule 3.7 hereto.  Seller is not subject to any judgment, decree, order or writ of any court, agency, authority, arbitration panel or other tribunal which would reasonably be expected to materially and adversely affect the Assets.

3.8Violation of Laws.  Except as set forth in Schedule 3.8, to Seller’s knowledge, Seller is not in violation of any law, rule, regulation or administrative or judicial order, the violation of which would have a materially adverse effect on the Assets and to Seller’s knowledge, there is no law, rule, regulation or administrative or judicial order that any of the transactions contemplated by this Asset Purchase Agreement would violate, the violation of which would have a materially adverse effect on the Assets.  Seller has not been charged with, threatened with, nor is under any investigation with respect to, any charge concerning any violation of any provision of any such law, rule, regulation or order, the violation of which would cause a materially adverse effect on the Assets.

3.9No Brokers or Finders.  Seller has not incurred any liability to any broker, finder or agent for any brokerage fees, finder’s fees or commissions with respect to the transactions contemplated by this Asset Purchase Agreement, and if Seller incurred any such liability, such liability shall be and remain its sole responsibility.

3.10Employees.  Schedule 3.10 contains a complete list of the names and positions of all full-time and part-time employees of PMG, PHSMG and PMS providing services to the Sunset Practice through the Effective Date.  All employees of Seller listed on Schedule 3.10 shall be terminated by Seller on or prior to the Closing Date.   Purchaser has the right, but not the obligation, to hire any or all of the employees listed on Schedule 3.10.   Purchaser has informed Seller that it currently intends to hire those employees listed on Schedule 4.8.  Because the Closing Date is not simultaneous with the Effective Date, as an accommodation to Purchaser, Seller is remaining the “employer” of those persons listed on Schedule 4.8

5

during the period between the Effective Date and the Closing Date.  Seller and Purchaser acknowledge that Purchaser is responsible for all wages paid to the employees listed on Schedule 4.8 and taxes and other amounts paid to or withheld for the benefit of any taxing or other governmental authority pursuant to any law or regulation for the services of such employees from July 1, 2001 through July 16, 2001.   Purchaser is also responsible for any and all 401(k) amounts, workers compensation and other amounts Prospect incurs during the period from July 1, 2001 through July 16, 2001 due to Prospect’s role as employer of the persons listed on Schedule 4.8 during the period between July 1, 2001 and July 16, 2001.

3.11Confidentiality.  To Seller’s best knowledge, Seller has maintained the confidentiality of all business and patient records as required by and in conformance with all applicable state and federal laws and regulations and Seller has not transferred any patient records to any individual or entity against the request of any patient regarding transferring his or her patient information or records.

3.12No Untrue Statements.  To Seller’s knowledge, (a) Seller has not made any materially untrue statement or representation in connection with this Asset Purchase Agreement, and (b) Seller has not failed to state or disclose any material fact in connection with the transactions contemplated by this Asset Purchase Agreement which under the circumstances, is required to be disclosed.

4.REPRESENTATIONS AND WARRANTIES OF PURCHASER:

Purchaser hereby represents and warrants to Seller that the statements contained in this Article 4 will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Asset Purchase Agreement throughout this Article 4), except as otherwise specifically set forth in the schedules attached hereto and initialed by the parties.  Purchaser hereby represents and warrants to Seller that:

4.1Organization.  Purchaser is a California professional corporation validly existing and in good standing under the laws of the State of California.

4.2Authority.  Purchaser has the authority to enter into this Asset Purchase Agreement and to consummate the transactions contemplated hereby.  All action on the part of Purchaser necessary for the authorization, execution, delivery and performance of this Asset Purchase Agreement and the consummation of the transactions contemplated hereby has been or will be taken prior to the Closing Date, and this Asset Purchase Agreement (including exhibits, schedules and the ancillary agreements) constitutes the legal, valid and binding obligation of Purchaser, enforceable in accordance with its terms, except as enforceability may be restricted, limited or delayed by applicable bankruptcy, insolvency, fraudulent conveyance, or other laws affecting creditor’s rights generally and except as enforceability is subject to general principles of equity.

4.3No Litigation and Insurance.  To the knowledge of Purchaser, there is no Action or any threatened Action relating to the Assets.  To the knowledge of Purchaser, the

6

Sunset Practice, as part of the Robertson Clinic, is not subject to any judgment, decree, order or writ of any court, agency, authority, arbitration panel or other tribunal which would reasonably be expected to materially and adversely affect the Assets.

4.4No Brokers or Finders.  Purchaser has not incurred any liability to any broker, finder or agent for any brokerage fees, finder’s fees or commissions with respect to the transactions contemplated by this Asset Purchase Agreement, and if Purchaser incurred any such liability, such liability shall be and remain the sole responsibility of Purchaser.

4.5No Violation of Other Obligations.  To Purchaser’s knowledge, neither this Asset Purchase Agreement nor any of the transactions contemplated hereunder violates or shall violate any lease, contract, document, understanding, agreement or instrument to which Purchaser is a party or by which it may be bound, or any lease, contract, document, understanding, agreement or instrument affecting Purchaser.  To Purchaser’s knowledge, neither the execution and delivery of this Asset Purchase Agreement nor the consummation of the transactions contemplated hereby will conflict with or violate any provision of the articles of incorporation or bylaws of the Purchaser or of any law, ordinance or regulation or any decree or order of any court or administrative or other governmental body which is either applicable to, binding upon or enforceable against Purchaser.

4.6No Consent Required.  Neither the execution of this Asset Purchase Agreement by Purchaser, nor the performance by Purchaser of its obligations under this Asset Purchase Agreement, requires the consent of any third party that will not have been obtained and delivered to Seller prior to the Closing Date.

4.7No Untrue Statements.  To Purchaser’s knowledge, Purchaser has made no untrue statement or representation in connection with this Asset Purchase Agreement, and Purchaser has not failed to state or disclose any material fact in connection with the transactions contemplated by this Asset Purchase Agreement.

4.8Employees.     Purchaser has informed Seller that it currently intends to hire those employees listed on Schedule 4.8.  Because the Closing Date is not simultaneous with the Effective Date, as an accommodation to Purchaser, Purchaser has requested that Seller  remain the “employer” of those persons listed on Schedule 4.8 during the period between the Effective Date and the Closing Date.  Purchaser acknowledges that Purchaser is responsible for all wages paid to the employees listed on Schedule 4.8 and taxes and other amounts paid to or withheld for the benefit of any taxing or other governmental authority pursuant to any law or regulation for the services of such employees from July 1, 2001 through July 16, 2001.   Purchaser acknowledges that it is also responsible for any and all 401(k) amounts, workers compensation and other amounts Prospect incurs during the period from July 1, 2001 through July 16, 2001 due to Prospect’s role as employer of the persons listed on Schedule 4.8 during the period between July 1, 2001 and July 16, 2001.  Purchaser agrees to reimburse Seller for these amounts on the Closing Date from the capitation advances referred to in Section 7.4(j) hereof.

7

5.COVENANTS:

5.1Conduct of Business.  Between the date of the execution of this Asset Purchase Agreement and the Closing: (a) Seller and Purchaser shall carry on the Sunset Practice in substantially the same manner as they have previously done; (b) Seller and Purchaser shall use best efforts to maintain and preserve the Assets in good condition and repair, and to prevent the imposition of any Liens on such Assets; (c) Seller and Purchaser shall use best efforts to preserve their relationships with its clients and customers; (d) Seller shall not liquidate or dissolve, take any steps to do same, or inform any third person or entity that it has done or intends to do the same; (e) Seller shall not enter into any material agreements which would affect the Assets without the written consent of Purchaser, which consent shall not be unreasonably withheld; and (f) Seller shall not enter into any material transactions not in the ordinary course of business which would affect the Assets without the written consent of Purchaser, which consent shall not be unreasonably withheld.

5.2No Shopping.  Except as otherwise required by law, between the date of the execution of this Asset Purchase Agreement and the Closing, neither Seller nor any member of Seller’s Board of Directors nor any of Seller’s officers (a) shall enter into negotiations or cause the negotiation on behalf of Seller concerning the acquisition of Seller or the Assets by any individual or entity other than Purchaser, or (b) interfere or cause the interference, in any way, with Purchaser’s acquisition of the Assets.

6.CONFIDENTIAL INFORMATION; PUBLICITY:

6.1Confidential Information.  Each of the parties hereto agrees that, at all times prior to or following the Closing Date, it shall not use for its or their benefit or for any third party’s benefit, any confidential information or trade secrets of any other party or any “Affiliate” (as defined below), or of any successor or assignee of such party or any Affiliate, and shall not disclose or cause to be disclosed to any third party any confidential information or trade secrets of any other party, any Affiliate, or any of their respective successors or assigns at any time prior to or after the Closing Date.  The parties shall maintain and keep confidential the terms of this Asset Purchase Agreement and the negotiations preceding this Asset Purchase Agreement, except as may be required by applicable law.  As used herein, “Affiliate” shall mean any business organization which controls a party directly or indirectly (“Parent”) or which is wholly owned or controlled by Parent or a party.

6.2Publicity.  No party shall, at any time on or after the date hereof through the Closing Date, issue any publicity or written or oral statement, or otherwise disclose the existence of this Asset Purchase Agreement or any of the terms or conditions hereof, or disclose the contemplation, implementation or consummation of any of the transactions intended hereby (other than to its directors, officers, employees, attorneys, financial advisors and other agents and representatives, as necessary in order to negotiate, evaluate, approve and consummate the transactions hereunder), without the prior written consent of Purchaser (in the case of Seller) or Seller (in the case of Purchaser) except as reasonably required of Purchaser by any applicable federal or state securities law (or agency’s) disclosure

8

requirements or bankruptcy laws or order.  In the case of any written publicity or statement, the applicable party with the above right of consent shall have the right to approve in advance the specific language of any such writing.

7.CLOSING; CONDITIONS TO OBLIGATIONS TO CLOSE:

7.1Closing.  The transactions contemplated by this Asset Purchase Agreement shall be consummated at the “Closing.”  The Closing shall take place on July 15, 2001 at Miller & Holguin, 1801 Century Park East, Seventh Floor, Los Angeles, California 90067, or at such other place as may be designated by Seller and Purchaser (“Closing Date”), unless such deadline is extended by Purchaser.

7.2Deliveries by Seller.  At the Closing, Seller shall execute (as to documents calling for execution) and deliver to Purchaser the following:

(a)A duly executed Bill of Sale/Assignment and Assumption Agreement in the form of Exhibit 7.2(a) attached hereto (“Bill of Sale/Assignment and Assumption”) and such other sufficient instruments and documents to convey, transfer, assign, or further perfect, title to each of the Assets as are reasonably requested by Purchaser to transfer the Assets.

(b)The Sublease in the form of Exhibit 7.2(b) duly executed and such other sufficient instruments and documents to sublease Seller’s interest in that portion of the Clinic Lease pertaining to the Sunset Practice.

(c)An officer’s certificate setting forth a copy of the resolutions adopted by Seller’s Board of Directors authorizing the terms of this Asset Purchase Agreement, the transactions contemplated herein and the Closing and certifying as to the authority of the officers executing this Asset Purchase Agreement and any documents to be delivered by Seller at the Closing.

(d)All manufacturers’ warranties and maintenance contracts, with appropriate assignments, which are still in effect relating to any of the Assets.

(e)Such other customary instruments, documents and certificates in forms reasonably satisfactory to Purchaser as shall be necessary to carry out the intent and effectuate the purposes of this Asset Purchase Agreement and sufficient to vest in Purchaser good title to the Assets, free and clear of all Liens, except those Liens set forth on Schedule 3.4.

7.3Deliveries by Purchaser.  At the Closing, Purchaser shall deliver to Seller the following:

(a)Payment of the Purchase Price in accordance with the terms of Section 2.1 herein and execution of the (i) Bill of Sale/Assignment and Assumption and (ii) Sublease

9

and such other sufficient instruments and documents to assume the Assumed Liabilities as are reasonably requested by Seller to transfer the Assumed Liabilities.

(b)An officer’s certificate setting forth a copy of the resolutions adopted by the Board of Directors of Purchaser authorizing and approving the execution and delivery of this Asset Purchase Agreement by Purchasers, the transactions contemplated herein and the Closing and certifying as to the authority of the officers executing this Asset Purchase Agreement and any documents to be delivered by Purchaser at the Closing.

(c)All other instruments and documents as Seller may reasonably request as necessary to carry out the intent and effectuate the purposes of this Asset Purchase Agreement.

7.4Conditions to Purchaser’s Obligations.  Purchaser’s obligation to consummate the transactions contemplated by this Asset Purchase Agreement is conditioned upon satisfaction, or waiver by Purchaser in writing, of all of the following on or before the Closing Date:

(a)The performance by Seller of all of its respective covenants and agreements under this Asset Purchase Agreement that are to be performed or satisfied on or prior to the Closing, including but not limited to the satisfaction of all the terms and conditions set forth in Section 1.1, the procurement and delivery to Purchaser of all assignments and consents referred to in Schedule 3.3 and all items required to be delivered under Section 7.2 hereof.

(b)No suit, action, arbitration or legal, administrative or other proceeding or governmental investigation shall be pending or threatened against Purchaser or Seller in relation to or affecting the consummation of the transactions contemplated by this Asset Purchase Agreement.

(c)Purchaser’s reasonable approval or satisfaction of each item under this Asset Purchase Agreement that Purchaser is entitled to approve or be satisfied with including, without limitation all schedules and exhibits hereto.

(d)Each of the representations and warranties of Seller are true and correct in all material respects as of the Closing.

(e)The Assets have not suffered any material loss or damage which is not substantially insured.  Seller shall have maintained the Assets in the regular course of business.

(f)Purchaser has not exercised the cancellation option under Section 8 below.

10

(g)Seller has given all notices to any third parties, if any, made all filings, and applied to obtain all required authorizations, consents and approvals of all health plans, and all governmental agencies in connection with the matters described herein in each case pursuant to applications which are satisfactory to Purchaser in form and substance.

(h)The execution of an Exclusive Primary Care Physician Services Agreement between PMG and each of Dr. Norman Lavet, Dr. Dana Eisenman and Dr. James Daniel in which each doctor directs that PMG pay all capitation payments directly to Purchaser.

(i)The execution of an Employment Agreement by Dr. Lavet with the Purchaser.

(j)Three (3) months advance of capitation fees (as defined in the Exclusive Primary Care Physician Services Agreement between PMG and each of the three primary care physicians attached hereto as Exhibit 1.1(a)) by Seller for each of Dr. Lavet, Dr. Eisenman and Dr. Daniel, less any reimbursement amount required by Section 7.5(h).

(k)Except as contemplated hereby or consented to by Purchaser, between the date of this Asset Purchase Agreement and the Closing there will not have been:

(l)any material adverse change in the Assets of Seller.

7.5Conditions to Seller’s Obligation.  Seller’s obligation to consummate the transactions contemplated by this Asset Purchase Agreement is conditioned upon satisfaction, or waiver by Seller in writing, of all of the following on or before the Closing Date:

(a)The performance by Purchaser of all of Purchaser’s covenants and agreements under this Asset Purchase Agreement that are to be performed or satisfied on or prior to Closing, including but not limited to the procurement and delivery of all items required to be delivered under Section 7.3 hereof.

(b)No suit, action, arbitration or legal, administrative or other proceeding or governmental investigation shall be pending or threatened against Purchaser in relation to or affecting the consummation of the transactions contemplated by this Asset Purchase Agreement.

(c)Seller’s reasonable approval or satisfaction of each item under this Asset Purchase Agreement that Seller is entitled to approve or be satisfied with, including without limitation, all items that Seller reviews due to its Due Diligence efforts and all schedules and exhibits hereto.

(d)Each of the representations and warranties of Purchaser is true and correct in all material respects as of the Closing.

11

(e)Seller has not exercised the cancellation option under Section 8 below.

(f)There will not have been any material adverse change in the business of Purchaser.  For the purpose of this Section 7.5, “material adverse change” shall mean any change that has resulted, will result or is likely to result in a material adverse effect on the business, results of operation, financial position or assets of Purchaser.

(g)The execution of an Exclusive Primary Care Physician Services Agreement between PMG and each of Dr. Norman Lavet, Dr. Dana Eisenman and Dr. James Daniel.

(h)Reimbursement to Seller of the payroll amounts paid or incurred as a result of Seller’s accommodation “employment” of the employees set forth in Schedule 4.8 during the period commencing with July 1, 2001 and ending with July 16, 2001 as set forth in Section 4.8.  Said reimbursement shall be made by means of a withholding by Seller of such amount from the capitation advances described in Section 7.4(j).

(i)The execution of a Promissory Note in favor of PMG by Purchaser, Dr. Dana Eisenman and Dr. James Daniel evidencing their obligation to repay, on the terms and conditions set forth therein, the three months capitation advances described in Section 7.4(j) hereof, including any reimbursement amount paid to Seller by means of a withholding from said capitation advances.

8.CANCELLATION OF ASSET PURCHASE AGREEMENT:

8.1Jeopardy.  In the event the performance by Purchaser or Shareholder of any term, covenant, condition or provision of this Agreement should be in violation of any statute, ordinance, or be otherwise deemed illegal, by a state or federal court or governmental agency  (collectively, “Jeopardy Event”), then the parties shall use their best efforts to meet forthwith and attempt to negotiate an amendment to this Asset Purchase Agreement to remove or negate the effect of the Jeopardy Event.  In the event the parties are unable to negotiate such an amendment within thirty (30) days following written notice by either party of the Jeopardy Event, then Purchaser or Seller may cancel this Agreement immediately upon written notice (“Cancellation Option”).

8.2Exercise of Cancellation Option.  In the event either party exercises the Cancellation Option described above, it shall so notify the other party in writing and each party shall return forthwith all originals and copies of any financial or other records, instruments, or other documents it has received from the other party and, except as provided in this Agreement, all of the parties’ respective rights and obligations hereunder shall terminate immediately.  Notwithstanding the foregoing, the parties’ respective obligations under Sections 6.2 and 6.3 above shall survive exercise of said Cancellation Option.

12

9.MISCELLANEOUS

9.1Risk of Loss.  Until the Closing, Seller shall bear all risk of loss, damage or destruction to the Assets of the Seller which does not result from a breach by Purchaser of its representations, warranties or covenants herein set forth.

9.2No Liability of Seller for Disputes over Inventory, FF&E and Allocation of Clinic Lease Square Footage for the Robertson Clinic.Purchaser acknowledges that its principals, Dr. James Daniel and Dr. Dana Eisenman, currently operate individual practices at the Robertson Clinic along with the individual practices of Dr. Lipper and Dr. David Frisch of the Lipper/Frisch Practice.  Dr. Daniel and Dr. Eisenman are aware of the inventory, furniture, fixtures and equipment and the square footage of the Clinic Lease currently used by the Sunset Practice and the Lipper/Frisch Practice.  Purchaser acknowledges and agrees that Purchaser worked with the Lipper/Frisch Practice to confirm Seller’s allocation of inventory, furniture, fixtures and equipment and square footage of the Clinic Lease attributable to the Sunset Practice and the Lipper/Frisch Practice and that Seller shall have no liability for disputes with the Lipper/Frisch Practice over that portion of inventory, furniture, fixtures and equipment or Clinic Lease square footage attributable to the Sunset Practice being conveyed to Purchaser pursuant to this Agreement.

9.3No Third Party Beneficiaries.  The parties intend that the benefits of this Asset Purchase Agreement shall inure only to Purchaser and Seller except as expressly so stated herein.  Notwithstanding anything contained herein, or any conduct or course of conduct by any party hereto, before or after signing this Asset Purchase Agreement, this Asset Purchase Agreement shall not be construed as creating any right, claim or cause of action against Purchaser or Seller by any other person or entity.

9.4Entire Agreement.  This Asset Purchase Agreement, together with all exhibits and schedules hereto, and all documents referred to herein (including without limitation any ancillary agreements), constitutes the entire agreement between the parties with respect to the subject matter hereof, 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.  Each party to this Asset Purchase Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by the other party(ies), or by anyone acting on behalf of any party, that are not embodied herein, and that no other agreement, statement, or promise not contained in this Asset Purchase Agreement shall be valid or binding.

9.5Successors and Assigns.  This Asset Purchase 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 Asset Purchase Agreement or the rights, interests or obligations hereunder; provided, however, that to the extent permitted by applicable law, Seller, after the Closing may, (i) assign any or all of its rights and interests hereunder to Imperial Bank or its nominees or to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Seller shall remain liable and responsible for the performance of

13

all of its obligations hereunder).  Any assignment or delegation in contravention of this Section 9.5 shall be null and void.

9.6Counterparts.  This Asset Purchase 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.

9.7Headings.  The section headings contained in this Asset Purchase Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Asset Purchase Agreement.

9.8Notices.  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 or upon delivery by facsimile (only where indicated below) on a business day or otherwise on the next succeeding business day; twenty-four (24) hours following deposit with a courier for overnight delivery on a business day or otherwise on the next succeeding business day; 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 Purchaser:	James Daniel, M.D. & Dana Eisenman, M.D.
	Medical Corporation
	150 N. Robertson Blvd., Suite 350 North
	Beverly Hills, California 90211
	Attn:	James Daniel, M.D.
		Dana Eisenman, M.D.
with a copy to:	Carpenter & Lessley, LLP
	601 West Fifth Street
	Los Angeles, California 90071
	Attn:	John Carpenter, Esq.

14

If to Seller:	Prospect Medical Group, Inc.
	6083 Bristol Parkway, Suite 100
	Culver City, California 90230
	Attn:	Jacob Y. Terner, M.D., President
	Prospect Health Source Medical Group
	6083 Bristol Parkway, Suite 100
	Culver City, California 90230
	Attn:	Jacob Y. Terner, M.D., President
	Prospect Medical Systems
	6083 Bristol Parkway, Suite 100
	Culver City, California 90230
	Attn:	R. Stewart Kahn, Executive Vice President
with a copy to:	Miller & Holguin
	1801 Century Park East, 7th Floor
	Los Angeles, California 90067
	Attn:	Dale S. Miller, Esq.

9.9Governing Law.  This Asset Purchase Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to the conflict of law provisions thereof.

9.10Amendment.  This Asset Purchase Agreement may be amended at any time by agreement of the parties, provided that any amendment shall be in writing and executed by both parties.

9.11Specific Performance.  Seller acknowledges and agrees with Purchaser that, in the event Seller terminates this Asset Purchase Agreement in violation hereof or otherwise fails to close in breach hereof, Purchaser would be irreparably damaged thereby and that monetary damages would not provide an adequate remedy.  Accordingly, it is agreed that, in such situations, in addition to any other remedies that Purchaser may have at law or in equity, Purchaser shall be entitled to specific performance and to seek injunctive relief to prevent such a breach and specifically to enforce the terms and provisions hereof in any action instituted in a court of competent jurisdiction.

9.12Severability.  If any provision of this Asset Purchase 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 Asset Purchase Agreement.

9.13Fees and Expenses.  Except as otherwise explicitly set forth otherwise in writing signed by the parties, Seller and Purchaser agree to bear their own expenses

15

including, without limitation, attorneys’ fees in connection with the preparation of this Asset Purchase Agreement and the transactions contemplated hereby.

9.14Exhibits and Schedules.  All exhibits and schedules attached to this Asset Purchase Agreement are incorporated herein by this reference and all references herein to “Asset Purchase Agreement” shall mean this Asset Purchase Agreement together with all such exhibits and schedules, and all ancillary agreements to be delivered at Closing.

9.15Survival of Representations and Warranties.  Except as expressly stated to the contrary herein, the representations and warranties of the parties contained in this Asset Purchase Agreement or in any certificate or document delivered at the Closing pursuant to the provisions hereof shall survive the Closing Date for a period of two (2) years.  The representations, warranties and agreements of Seller set forth in this Agreement shall be effective regardless of any investigation that Purchaser has undertaken or failed to undertake, except to the extent any representation or warranty of Seller is actually known by Purchaser to be untrue prior to Closing, in which case, Purchaser’s sole remedy is to elect not to consummate the transactions contemplated by this Asset Purchase Agreement in accordance with the terms of Section 7.4(c).  The representations, warranties and agreements of Purchaser set forth in this Agreement shall be effective regardless of any investigation that Seller has undertaken or failed to undertake, except to the extent any representation or warranty of Purchaser is actually known by Seller to be untrue prior to Closing, in which case, Seller’s sole remedy is to elect not to consummate the transactions contemplated by this Asset Purchase Agreement in accordance with the terms of Section 7.5(c).

9.16Time of Essence.  Time is expressly made of the essence of this Asset Purchase Agreement and each and every provision hereof of which time of performance is a factor.

9.17Waivers.  No waiver by any party of its rights under any provision of this Agreement shall constitute a waiver of the party’s rights under such provisions at any other time or a waiver of the party’s rights under any other provision of this Asset Purchase Agreement.  No failure by any party to take any action against any breach of this Asset Purchase Agreement or default by another party shall constitute a waiver of the former party’s right to enforce any provision of this Asset Purchase Agreement or to take action against such breach or default or any subsequent breach or default by the other party.  To be effective any waiver must be in writing and signed by the waiving party.

9.18Attorneys’ Fees.  Should any party institute any action or procedure to enforce this Asset Purchase Agreement or any provision hereof, or for damages by reason of any alleged breach of this Asset Purchase Agreement or of any provision hereof, or for a declaration of rights hereunder (including without limitation 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.

16

9.19Arbitration.  The parties firmly desire to resolve all disputes arising hereunder without resort to litigation in order to protect their respective business reputations and the confidential nature of certain aspects of their relationship.  Accordingly, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration as set forth below.

(a)All disputes which in any manner arise out of or relate to this Agreement or the subject matter thereof, shall be resolved exclusively by arbitration in accordance with the provisions of this Section 9.18.  Either party may commence arbitration by sending a written demand for arbitration to the other party, setting forth the nature of the controversy, the dollar amount involved, if any, and the remedies sought, and attaching a copy of this Section to the demand.

(b)The parties stipulate to arbitration before a single, mutually agreed upon arbitrator sitting on the Los Angeles, California Judicial Arbitration Mediation Services (“JAMS”) panel.  In the event that the parties are unable to agree upon the person chosen as arbitrator within 30 days of the demand for arbitration, the arbitrator shall be selected in the sole discretion of the JAMS administrator.  The arbitrator shall be a member of the California bar.

(c)The parties shall share all costs of arbitration.  The prevailing party shall be entitled to reimbursement by the other party of such party’s attorneys’ fees and costs and any arbitration fees and expenses incurred in connection with the arbitration hereunder.

(d)The substantive law of the State of California shall be applied by the arbitrator.  All proceedings in arbitration shall be in accordance with the California Code of Civil Procedure, as amended, and the parties shall have the right to legal discovery in any matter submitted to arbitration in satisfaction of California Code of Civil Procedure Section 1283.05, as permitted by California Code of Civil Procedure Section 1283.1(b).

(e)Arbitration shall take place in Los Angeles, California unless the 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.

(f)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.

17

(g)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 equitable relief.

(h)The decision and award of the arbitrator shall be kept confidential by the parties to the greatest extent possible.  No disclosure of such decision or award shall be made by the parties except as required by law or as necessary or appropriate to effect the enforcement thereof.

(i)Should either party 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 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.

9.20Construction.  The parties have participated jointly in the negotiation and drafting of this Asset Purchase Agreement and in the event of any ambiguity or question of intent or interpretation, no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Asset Purchase Agreement.

9.21Further 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 Asset Purchase Agreement and the intentions of the parties hereto.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]

18

IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase Agreement as of the date first written above.

“SELLER”
PROSPECT MEDICAL GROUP, INC.,
a California professional corporation
By:	/s/ R. Stewart Kahn
	R. Stewart Kahn, Secretary
PROSPECT HEALTH SOURCE MEDICAL
GROUP, a California professional corporation
By:	/s/ R. Stewart Kahn
	R. Stewart Kahn, Secretary
PROSPECT MEDICAL SYSTEMS,
a Delaware corporation
By:	/s/ R. Stewart Kahn
	R. Stewart Kahn, Secretary
“PURCHASER”
JAMES DANIEL, M.D. &
DANA EISENMAN, M.D. Medical Corporation
a California professional corporation
By:	/s/ James Daniel
	James Daniel, President

19