Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into and made effective
as of June 1, 2007 (the “Effective Date”), by and between ProMed Health Care
Administrators, a California corporation (“ProMed HCA”) and Jeereddi Prasad,
M.D., an individual (“Executive”).

 

WHEREAS, the execution of this Agreement is a condition to the closing of the
transactions under that (a) Stock Purchase Agreement dated as of May 21, 2007
among Prospect Medical Group, Inc., a California professional corporation
(“PMG”), Prospect Medical Holdings, Inc., a Delaware corporation and an
affiliate of PMG (“PMH”), Upland Medical Group, A Professional Medical
Corporation (“ProMed Upland”) and Executive (the “ProMed Upland Stock Purchase
Agreement”), (b) Agreement and Plan of Reorganization dated as of May 21, 2007
among PMG, Prospect Pomona Medical Group, Inc., a California professional
corporation, PMH, Pomona Valley Medical Group, Inc. dba ProMed Health Medical
Group Network of Pomona Valley Inc.  (“ProMed Pomona”) and certain of the ProMed
Pomona Shareholders (the “ProMed Pomona Merger Agreement”), and (c) Agreement
and Plan of Reorganization dated as of May 21, 2007 among PMH, Prospect Health
Administrators, Inc., a California corporation, ProMed Health Services Company,
a California corporation (“ProMed HCA Parent”), ProMed Health Care
Administrators, a California corporation (“ProMed HCA”) and certain of the
ProMed HCA Parent shareholders (the “ProMed HCA Merger Agreement”).

 

WHEREAS, Executive is currently the President of ProMed Upland, ProMed Pomona,
ProMed HCA and ProMed HCA Parent under an existing employment Agreement
(“Existing Employment Agreement”).

 

WHEREAS, PMH and PMG, as the new owners of the business of ProMed Upland, ProMed
Pomona, ProMed HCA Parent and ProMed HCA (collectively, the ProMed Entities”),
desire that Executive remain as an officer of the ProMed Entities, pursuant to
the terms and conditions set forth herein.

 

WHEREAS, the Executive has entered into a Non-Compete Agreement, dated as of
even date herewith, with PHM (the “Non-Compete Agreement”).

 

WHEREAS, this Agreement shall supersede and replace the Existing Employment
Agreement with no further consideration due thereunder.

 

NOW, THEREFORE, the parties agree as follows:

 

1.                                       TERM OF EMPLOYMENT.  ProMed HCA hereby
employs Executive and Executive accepts such employment for an initial term of
three (3) years commencing as of the date of this Agreement (the “Commencement
Date”) which shall be automatically renewed for successive one year periods
unless either party gives written notice of non-renewal at least ninety(90) days
prior to the expiration of the initial or any renewal term, subject to
termination at any time, in accordance with the termination provisions of
Section 5 below (the “Term”).

 

2.                                       DUTIES.  Executive shall be employed as
the President of ProMed HCA.  Executive shall also serve, without additional
compensation, as President of each of the other ProMed

 

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Entities.  Executive shall perform such duties pertaining to the operations of
the ProMed Entities as the ProMed Entities, PMG, PMH or any of their respective
Board of Directors may from time to time direct.  During the period of
employment, if elected, Executive shall serve as director on the Board of
Directors of PMH.  ProMed HCA agrees to nominate Executive as a director to the
independent members of PMH’s Board of Directors.  If approved by the independent
members of PMH’s Board of Directors, ProMed HCA will request the full board of
PMH’s vote on the appointment of Executive to fill a current vacancy on PMH’s
Board of Directors.  Additionally, if requested by PMH’s Board of Directors,
Executive will serve as a director on the board of directors of any or all of
the ProMed Entities.  Executive shall also serve as a member of any board
committee to which he may be appointed.  Executive shall not receive any
additional compensation for sitting on any such boards or committees.

 

3.                                       NECESSARY SERVICES.

 

(a)                                  Performance of Duties.  Executive agrees
that he will at all times faithfully, industriously and to the best of his
ability, experience and talents, perform to the reasonable satisfaction of the
ProMed Entities all of the duties that may be assigned to him hereunder.  Such
duties shall be of a kind that are typically assigned to, and reasonably
commensurate with, the position of Chief Executive Officer of a subsidiary or
affiliate company.  Executive acknowledges that Jacob Y. Terner, M.D., the Chief
Executive Officer of PMH and PMG, and/or the Board of Directors of PMH, shall
assign tasks to Executive which are commensurate with an executive position.

 

(b)                                 Faithful and Diligent Performance.  During
the Term of the Agreement, Executive agrees to devote such time, energy, skill
and efforts to the performance of his duties hereunder as are necessary to allow
Executive to faithfully and diligently further the business and interests of the
ProMed Entities.  The obligations hereunder shall not preclude Executive from
working or involving himself in any other business venture so long as it does
not detract from Executive’s ability to provide services to the ProMed Entities
and any directorships or committee positions he is then serving under the terms
of this Agreement (including not conflicting with the provisions of Subsection
(c) below).

 

(c)                                  Services by Executive.  Executive agrees
that, during the period of his employment, Executive shall provide personal
services to the ProMed Entities pursuant to this Agreement, and Executive will
not, within the California counties of Los Angeles, San Bernardino and Orange
(other than Executive’s existing business with the Chaparral Clinics), without
the prior written consent of PMH (which consent may be granted or withheld in
the sole and absolute discretion of PMH), individually or in any combination,
directly or indirectly, as an owner, shareholder, director, officer, trustee,
partner, associate, consultant, principal, agent, contractor, employee or
otherwise:

 

(i)                                     engage, participate in, form, contract,
aid, or hold any interest in an independent physician association (IPA) with
over 50,000 enrollees, or any entity that manages an IPA with over 50,000
enrollees, which is, or as of the Executive’s engagement or participation, would
become, competitive with any aspect of the business or operations of the ProMed
Entities, PMH, PMG or any affiliate of any of them (it being understood that the
restrictions of this Subsection (a) shall not restrict (A) Executive from
practicing medicine

 

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generally, nor restrict Executive from contracting with IPAs for the provision
of personally-provided patient care services, provided that such practice does
not detract from Executive’s ability to provide services to the ProMed Entities
or any directorship or committees to which Executive is then serving under the
terms of this Agreement, (B) restrict Executive from his ownership and/or
operation of the Chaparral Clinics, (C) prohibit Executive from owning up to
five percent (5%) of any class of securities of any publicly traded company, or
(D) prohibit Executive from continuing to engage in any activity in which
Executive was engaged in as of the Effective Date, which activities have been
disclosed in writing to Prospect provided such activities do not now, or in the
future, become a conflict of interest with the business of Prospect or its
affiliates).

 

(ii)                                  commit any other act or assist others to
commit any other act that is injurious to the business of the ProMed Entities or
any of the ProMed Entities’ affiliates, including but not limited to PMG, PMH,
or any other of PMH’s affiliates.  Executive shall be entitled to attend
seminars, conferences and meetings relating to the business of PMH consistent
with PMH established policies in that regard so long as such attendance does not
interfere with Executive’s duties to the ProMed Entities.

 

4.                                       COMPENSATION.

 

(a)                                  Base Salary.  ProMed HCA shall pay
Executive a base salary of Three Hundred Thousand Dollars ($300,000) per annum,
effective as of the Commencement Date.  Payments shall be made in periodic
installments in accordance with the normal payroll practices of PMH and its
affiliates.

 

(b)                                 Employee Benefits.  Executive shall be
entitled to participate in all of the employee fringe benefit plans and programs
available to other executive employees of PMH.  Executive shall receive an
automobile allowance of One Thousand Three Hundred Dollars ($1,300) per month
and reimbursement for one week annually of continuing medical education.  PMH
retains the right to modify or eliminate such plans and programs, and to
consolidate such plans and programs with those of its parent or affiliated
corporations.

 

(c)                                  Deductions and Withholding.  Executive
hereby agrees that ProMed HCA may deduct and withhold from the compensation
payable to Executive hereunder any amounts of money required to be deducted or
withheld by ProMed HCA under the provisions of any and all applicable local,
state or federal statutes or regulations or any amendments thereto hereafter
enacted requiring the withholding or deducting of compensation.

 

(d)                                 Bonus.  Executive shall be entitled to an
annual incentive bonus of 6.67% of the amount by which the EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization) of the aggregate ProMed
Entities exceeds $10,500,000, $11,500,000, $12,500,000, $13,500,000 and
$14,500,000 in fiscal years 2007, 2008, 2009, 2010 and 2011, respectively.

 

5.                                       TERMINATION.

 

(a)                                  Term.  Except as provided herein, this
Agreement shall terminate at the end of the initial or any renewal Term
specified in Section 1 of this Agreement.

 

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(b)                                 Termination For Cause And Other Specified
Events.  Notwithstanding the provisions of paragraph (a) above, Executive’s
employment with ProMed HCA shall terminate upon any of the events specified
below:

 

(i)                                     Upon the death of Executive, or (at the
election of ProMed HCA) the permanent disability of Executive, “permanent
disability” being defined as any continuous loss of one-half (½) or more of the
time spent by Executive in the usual daily performance of his duties as a result
of physical or mental illness for a continuous period in excess of ninety (90)
days.

 

(ii)                                  Upon the date that ProMed HCA ceases to
conduct business for any reason whatsoever (other than the voluntary
consolidation of ProMed HCA’s business into PMG, PMH or one of their affiliates,
in which case the terms of this Agreement shall continue and Executive shall
continue to be responsible for the business of ProMed HCA and within PMG, PHH or
such affiliate despite such voluntary consolidation);

 

(iii)                               At the election of ProMed HCA, upon the
breach by Executive of any term or condition of this Agreement or upon the
dismissal of Executive by ProMed HCA for Cause.  For purposes of this Agreement,
“Cause” shall be deemed to exist if Executive (1) engages in one or more acts
constituting criminal conduct; (2) engages in one or more acts involving fraud
or serious moral turpitude; (3) misappropriates assets or engages in gross
misconduct materially injurious to ProMed HCA or its parent or affiliates; or
(4) engages in a course of conduct or pattern of behavior that has had or will
have a material adverse impact upon ProMed HCA or its parent or affiliates, or
their business or operations.  Termination under this subparagraph shall be
effective immediately upon written notice by ProMed HCA.

 

(iv)                              At the election of Executive for Good Reason. 
For purposes of this Agreement, “Good Reason” shall mean (i) ProMed HCA’s
failure to pay Executive’s salary pursuant to this Agreement for more than 30
days, (ii) a change in Executive’s title, responsibilities or duties to a
materially lesser status or degree than his title, responsibilities or duties as
of the Effective Date, or (iii) the relocation of ProMed HCA’s principal
executive offices outside a 25-mile radius provided, however, that Employee
shall be required to render services from time to time at such other offices of
PMH or PMG within or without the United States as ProMed HCA, PMG or PMG may
require in the performance of Executive’s duties.

 

(c)                                  Compensation Following Termination For
Cause And Other Specified Events.  In the event Executive’s employment is
terminated pursuant to paragraph (b) above, ProMed HCA shall pay to Executive
the portion of the total amount of the Base Salary earned through the date of
termination.  In addition, Executive shall be paid any vacation, PTO, or other
compensation that has accrued pursuant to ProMed HCA’s written policies but has
not been used.  Otherwise, ProMed HCA shall have no obligation to make payments
to, or bestow benefits upon, Executive following the date of termination.

 

(d)                                 Termination Without Cause.  Notwithstanding
the above-stated provisions, ProMed HCA retains the right to terminate
Executive’s employment “at-will,” either with or without cause and in its sole
discretion; provided, however, that if ProMed HCA elects to exercise its right
to terminate without cause under this provision, Executive shall be entitled to

 

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continue receiving all of the following for the balance of the Term or a period
of six (6) months, whichever is greater, as though Executive were continuing to
perform services to ProMed Upland under this Agreement:  (1) his full Base
Salary as set forth in paragraph 4(a) above, (2) the bonus as set forth in
paragraph 4(d) above, and (3) payment of the premiums to continue group medical
coverage for himself and his spouse and dependents.  In addition, Executive
shall be paid any vacation, PTO, or other compensation that has accrued pursuant
to ProMed HCA’s written policies but has not been used, as of the date of
termination.  Otherwise, ProMed HCA shall have no obligation to make payments
to, or bestow benefits upon, Executive following the date of termination.

 

(e)                                  Return of Company’s Property.  Upon
expiration of this Agreement, or in the event Executive’s employment is
terminated for any reason during the Term of this Agreement, ProMed HCA may, at
its option, require Executive to vacate his offices immediately, and to cease
all activities on ProMed HCA’s behalf.  Executive agrees that upon receiving
notice of termination of his employment in any manner, he will immediately
deliver to ProMed HCA all notebooks, brochures, documents, memoranda, reports,
price lists, files, invoices, purchase orders, books, correspondence, customer
lists, or other written or graphical records, and the like, relating to the
business or work of ProMed HCA, which are or have been in his possession or
under his control.  Executive hereby expressly acknowledges that all such
materials referenced above are the property of ProMed HCA.

 

6.                                       EXPENSES.  ProMed HCA shall pay for or
reimburse Executive for all properly documented reasonable business expenses
incurred or paid for by Executive in the performance of his duties hereunder,
including expenditures for travel, mileage, professional organization dues and
other authorized expenses, subject to such written policies or guidelines and/or
requirements for verification as ProMed HCA may, in its sole and absolute
discretion, establish.

 

7.                                       CONFIDENTIALITY AND TRADE SECRETS.

 

(a)                                  Confidential Information.  Executive shall
keep in strictest confidence all information relating to the business, affairs,
customers and suppliers of the ProMed Entities or their parent or affiliates
(collectively hereinafter referred to as “Trade Secrets”), including, among
other things but without limitation, the ProMed Entities’ cost of performing
services, pricing formulae, methods or procedures, and customer lists, which
Executive may acquire during the performance of his services and duties
hereunder and which is not otherwise generally known to the public.  Executive
acknowledges that such Trade Secrets are of great value, and have been developed
and/or acquired at great expense to the ProMed Entities, and the ProMed Entities
would not enter into this contract of employment and such information would not
be made available to Executive in Executive’s fiduciary capacity unless the
ProMed Entities were assured that all such information will be used for the
exclusive benefit of the ProMed Entities.  Accordingly, during the term of this
Agreement, and at all times thereafter, Executive shall not publish,
communicate, divulge, disclose or use, whether or not for his own benefit, any
such information without the prior written consent of the ProMed Entities.

 

(b)                                 Non-Diversion.  Executive hereby
specifically agrees that he will not utilize any information concerning
patients, customers, or business associates of the ProMed Entities, or its
parent or affiliates, which Executive acquires during the term of this
Agreement, whether or not

 

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the same originated through Executive’s efforts, for any purpose detrimental to
the business of the ProMed Entities or their parent or affiliates.  Without
limitation of the foregoing, Executive agrees that he shall not at any time
interfere with any existing contracts of the ProMed Entities, nor divert or
attempt to divert business or patients away from the ProMed Entities or their
parent or affiliates.

 

(c)                                  Solicitation of Employees.  Executive
acknowledges that important factors in the ProMed Entities’ business and
operations are the loyalty and good will of its employees.  Accordingly,
Executive agrees that both during the term of this Agreement, and following the
expiration or termination of this Agreement, he will not (i) solicit for hire,
or induce any party to recruit, hire or solicit for hire, any of the persons
listed in Schedule 2.17 to the ProMed Upland Stock Purchase Agreement, ProMed
Pomona Merger Agreement or ProMed HCA Merger Agreement or any entities or
persons who are independent contractors of the ProMed Entities on the Effective
Date (ii) solicit, divert or take away, or attempt to solicit, divert or take
away, any customers, business or clients of the ProMed Entities or the ProMed
Entities’ affiliates (including, without limitation, any third party payors);
(iii) solicit or induce any party to solicit, any contractors of the ProMed
Entities or the ProMed Entities’ affiliates to enter into the same or a similar
type of contract with any other party; or (iv) disrupt, damage, impair, or
interfere with the business of the ProMed Entities or the ProMed Entities’
affiliates; provided, however, that the restrictions set forth above in (i) with
respect to Executive’s ability to hire employees or independent contractors of
the ProMed Entities or the ProMed Entities’ affiliates are limited to a period
of (A) six (6) months from the termination or expiration of this Agreement), or
(B) the expiration of the non-competition provisions of the Non-Compete
Agreement, whichever is greater, being executed by Executive concurrently
herewith provided that Executive has remained in compliance with the
non-solicitation requirements set forth above during the restriction period. 
Executive further agrees that information as to the capabilities of the ProMed
Entities’ employees, their salaries and benefits, and the other terms of their
employment is confidential and proprietary to the ProMed Entities and
constitutes its valuable trade secrets.  Notwithstanding the foregoing, nothing
in this Agreement shall preclude Executive from accepting an affirmative
response from a person to a general recruitment or advertising effort carried
out through public or general solicitation or hiring a person in the absence of
any indirect or indirect solicitation or inducement.

 

(d)                                 Ongoing Obligation.  The provisions in this
Section 7 shall be binding during Executive’s employment.  In the event the
provisions in this Section 7 are more restrictive than permitted by the laws of
the jurisdiction in which enforcement of this provision is sought, such
provisions shall be interpreted to extend only over the maximum period of time,
range of activities or geographic area as to which it may be enforceable.

 

8.                                       REMEDY FOR BREACH.  Executive
acknowledges that the services to be rendered by him hereunder are of a special,
unique and extraordinary character, which gives this Agreement a peculiar value
to the ProMed Entities, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law, and a breach by Executive of the
provisions of this Agreement will cause the ProMed Entities irreparable injury. 
It is, therefore, expressly acknowledged that the Provisions of Sections 3 and 7
of this Agreement may be enforced by injunction and other equitable remedies,
without bond.  Such relief shall not be exclusive, but shall be in addition to
any other rights or remedies ProMed HCA may have for such breach, and

 

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the ProMed Entities shall be entitled to recover all costs and expenses,
including reasonably attorneys’ fees, incurred by reason of any breach of the
covenants of this Agreement.

 

9.                                       ATTORNEYS’ FEES.  In the event of any
dispute (including but not limited to actions, suit, or arbitration) between the
parties hereto in connection with this Agreement or Executive’s employment with
ProMed HCA or termination thereof, or to enforce any provision or right
hereunder, the prevailing party shall be entitled to an award of all costs and
expenses incurred in connection therewith, including but not limited to
reasonable attorneys’ fees incurred by the prevailing party.

 

10.                                 GENERAL PROVISIONS.

 

(a)                                  The failure of ProMed HCA at any time to
enforce performance by Executive of any provisions of this Agreement shall in no
way affect ProMed HCA’s rights thereafter to enforce the same, nor shall the
waiver by ProMed HCA of any breach of any provision hereof be held to be a
waiver of any other breach of the same or any other provision.

 

(b)                                 This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the successors and assigns of
ProMed HCA; provided, however, it is understood and agreed that the services to
be rendered and the duties to be performed by Executive hereunder are of a
special, unique and personal nature and that it would be difficult or impossible
to replace such services; by reason thereof, Executive may not assign either the
benefits or the obligations of this Agreement.

 

(c)                                  Any notices, requests, consents, or other
communications required or permitted under this Agreement shall be in writing
and may be delivered in person to the other party, or sent by United States mail
or commercial courier service.  The addresses set forth below shall be deemed
sufficient for purposes of providing notice under this Agreement:

 

To
Executive:                                                                     
Jeereddi Prasad, M.D.
[Intentionally Omitted]

 

To
ProMed:                                                                               
ProMed Health Care Administrators
c/o Prospect Medical Group
1920 East 17th Street, Suite 200
Santa Ana, CA 92705
Attn: Jacob Y.  Terner, M.D.

 

Each party may change his or its address through written notice in compliance
with this Section.  Written notice provided by methods other than those
specified herein shall be effective if actually received, in timely fashion, by
the other party.

 

(d)                                 This Agreement is the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written agreements and negotiations between the
parties.  Nothing in this Agreement shall be deemed to be a limitation on the
remedies of any of the parties under the Non-Compete Agreement.

 

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(e)                                  The headings of the several paragraphs in
this Agreement are inserted solely for the convenience of the parties and are
not a part of and are not intended to govern, limit or aid in the construction
of any term or provision hereof.

 

(f)                                    This Agreement may not be modified except
by a written instrument signed by all parties hereto.

 

(g)                                 All clauses and covenants contained in this
Agreement are severable, and in the event any of them shall be held to be
invalid by any court, such clauses or covenants shall be limited as permitted
under applicable law, or, if the same are not susceptible to such limitation,
this Agreement shall be interpreted as if such invalid clauses or covenants were
not contained herein.

 

(h)                                 This Agreement is made with reference to the
laws of the State of California and shall be governed by and construed in
accordance therewith.  Any litigation concerning or to enforce the provisions of
this Agreement shall be brought in the courts of the State of California.

 

(i)                                     Any and all disputes arising under this
Agreement, or with respect to Executive’s employment or the other subject
matters addressed in this Agreement (other than claims for specific performance
or other equitable relief permitted by this Agreement), shall be resolved
through binding arbitration.  The arbitration shall be administered by JAMS,
with the arbitration to be conducted in Los Angeles, California. 
Notwithstanding the foregoing, the parties shall have the rights to discovery in
accordance with California Code of Civil Procedure Section 1283.05.

 

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

 

 

EXECUTIVE

 

 

 

 

 

 

 

/s/ Jeereddi Prasad, M.D.

 

Jeereddi Prasad, M.D.

 

 

 

 

 

 

 

ProMed Health Care Administrators

 

 

 

 

By:

/s/ Jacob Y. Terner, M.D.

 

 

Jacob Y. Terner, M.D.

 

 

Vice President

 

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