Document:

Exhibit 10.5

 

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

 

First Amendment to
Employment Agreement (“First Amendment”) effective December 30, 2008, between Virtual Radiologic Corporation, a Delaware
corporation (“Company”), and Leonard Purkis (“Executive”).

 

Whereas, Company and Executive are parties to
an Employment Agreement dated April 14, 2008 (“Original Agreement”); and

 

Whereas, Company and Executive desire to
amend the Original Agreement to comply with the requirements of Section 409A
of the Internal Revenue Code.

 

Now therefore Company and Executive agree as
follows:

 

A.                                   Section 8(a) of the Original
Agreement is amended in its entirety to read as follows:

 

(a)                                  Disability.  Upon such termination, the Company shall pay
or provide Executive (i) any unpaid Base Salary through the date of
termination and any accrued vacation; (ii) any unpaid bonus earned with
respect to any fiscal year ending on or preceding the date of termination; (iii) reimbursement
for any unreimbursed expenses incurred through the date of termination; and (iv) all
other payments, benefits or fringe benefits to which Executive may be entitled
under the terms of any applicable compensation arrangement or benefit, equity
or fringe benefit plan or program or grant or this Agreement (collectively, “Accrued
Amounts”). Such benefits shall be paid 15 days following the date of
termination under this provision.

 

B                                        Section 8(d) of the Original
Agreement is amended in its entirety to read as follows:

 

(d)                                 Termination
Without Cause or for Good Reason.  If Executive’s employment by the Company is
terminated by the Company other than for Cause (other than a termination for
Disability) or by Executive for Good Reason, the Company shall pay or provide
Executive with (i) Accrued Amounts; (ii) a pro-rata portion
(determined by multiplying the amount Executive would have received had
employment continued through the end of the performance year by a fraction, the
numerator of which is the number of days during the performance year of
termination that Executive is employed by the Company and the denominator of
which is 365) of Executive’s Annual Bonus for the performance year in which
Executive’s termination occurs at the time that annual bonuses are paid to
other senior executives; provided that the Board determines in good faith that
the Company was on plan for Executive to earn such bonus at the time of
termination; (iii) continue his then current Base Salary as if his
employment continued for a period of twelve (12) months from the date of
termination, subject to the 

 

 

mitigation provisions set forth below; and (iv) subject to
Executive’s continued co-payment of premiums, continued participation for
twelve (12) months in all health and welfare plans which cover Executive (and
eligible dependents) upon the same terms and conditions (except for the
requirements of Executive’s continued employment) in effect on the date of
termination.  If at any time after
Executive’s termination while the Company is obligated hereunder to make such
payments of Base Salary or continue such benefits, Executive receives
compensation for providing services as an employee or as an independent
contractor from any person or entity, then Executive shall immediately notify
the Company of such event and the Company’s obligation to continue to make such
payments to Executive shall be reduced by the gross amount of any such payments
and the obligation to continue to provide benefits shall cease at such time as
Executive is eligible for health insurance coverage by any successor employer
or person or entity, prompt notice of which Executive shall furnish to the
Company.  Executive shall use good faith
and reasonable efforts to find and secure new employment after any such
termination.  To the extent such coverage
cannot be provided under the Company’s health or welfare plans without
jeopardizing the tax status of such plans, for underwriting reasons or because
of the tax impact on Executive, the Company shall pay Executive an amount equal
to the amount the Company would have paid for such benefits on behalf of
Executive if the benefits were provided to him as an employee.  The continuation of health benefits under
this subsection shall reduce and count against Executive’s rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).  All benefits provided under Section 8(d)(iii) may
be paid to the Employee within thirty (30) days of the termination date once
all necessary applicable releases have been signed by the Employee and returned
to the Company.  Notwithstanding anything to the contrary herein, if Executive is a “specified
employee,” as defined in Section 409A(a)(2)(B)(i) of the Internal
Revenue Code as of the date of any termination, any benefits due under this Section 4(d) otherwise  payable within six months following
termination shall be provided in one lump sum six months from the date of
termination.  However, any payment or portion thereof which is subject to
an exemption for separation pay to specified employees as provided under Section 409A
and the relevant Treasury Regulations, or is subject to any other exemption
provided under Section 409A and the relevant Treasury Regulations allowing
for payment to a specified employee prior to the date that is six (6) months
after the date of separation from service, may be paid to Employee
within thirty (30) days of the termination date once all applicable releases
have been signed by the Executive and returned to the Company.

 

C.                                     The Original
Agreement, as amended by this First Amendment, shall continue in full force and
effect according to its terms.

 

(the
remainder of this page is intentionally blank)

 

 

IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to be effective as of the date first written above.

 

	
   

  	
  COMPANY

  
	
   

  	
   

  
	
   

  	
  Virtual Radiologic
  Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rob Kill

  
	
   

  	
   

  	
  Name:  Rob Kill

  
	
   

  	
   

  	
  Its:  President
  and Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
  Leonard Purkis

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Leonard PurkisExhibit 4.11

 

Prospect Medical Holdings, Inc.

Stock Option Agreement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.                                       Vesting of the Option.

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

9.                                       Giving Notice. 
Any notice given under this Agreement shall be addressed to the Company
in care of its Corporate Secretary at the principal executive office of the
Company, with a copy to the 

 

4

 

Director, Human
Resources, at the principal executive office of the Company, and to the
Optionee at the address appearing in the personnel records of the Company for
the Optionee or to either party at such other address as either party hereto
may hereafter designate in writing to the other.  Any such notice shall be deemed effective
upon receipt thereof by the addressee.

 

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

 

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

 

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

 

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

 

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

 

(Signature
Page Follows)

 

5

 

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

 

 

	
  COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PROSPECT MEDICAL HOLDINGS,
  INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  OPTIONEE

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name:Samuel S. Lee

  	
   

  

 

6

 

Exhibit A

 

Prospect Medical Holdings, Inc.

Notice of Grant of Stock Option

 

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

 

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

 

2.                                       Grant Information for this Award:

Date of Grant:                      August 20, 2008

Exercise Price per Share:                $2.40

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

Option Expiration Date:                    August 20, 2013

 

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

 

	
  Shares

  	
   

  	
  Vesting Date

  	
   

  	
  Performance Vesting (Yes/No)

  	
   

  
	
  833,333

  	
   

  	
  Aug. 20,
  2008

  	
   

  	
  No 

  	
   

  
	
  311,459

  	
   

  	
  Mar. 19,
  2009

  	
   

  	
  No 

  	
   

  
	
  311,458

  	
   

  	
  Mar. 19,
  2010

  	
   

  	
  No

  	
   

  

 

subject to the terms of the Agreement.

 

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

 

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

 

7

 

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

 

8

 

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

 

	
   

  	
   

  
	
   

  	
  Prospect Medical Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Linda Hodges

  Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Accepted and Agreed to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Optionee: 

  	
   

  	
   

  	
   

  
	
   

  	
  Samuel S. Lee

  	
   

  
	
   

  	
   

  
	
  Home Address:

  	
  Business Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

9

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