Document:

Exhibit
10.12

 

EMPLOYMENT
AGREEMENT

 

THIS EMPLOYMENT AGREEMENT
(this “Agreement”) is executed as of the 1st day of August, 1999 (the
“Effective Date”), by and between Prospect Medical Holdings, Inc., a Delaware
corporation (“Employer”), and Jacob Y. Terner, M.D. (“Employee”).

 

P R E A M B L E

 

A.                                   Employer
is a provider of management services to physician groups; and

 

B.                                     Employer
desires to obtain the services of Employee as Chief Executive Officer of
Employer, and Employee desires to be employed by Employer, upon the terms and
conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the
premises and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows:

 

1.                                       TERMS AND
CONDITIONS OF EMPLOYMENT

 

1.1                                 Employment.  Employer hereby employs Employee and
Employee hereby accepts employment as Chief Executive Officer of Employer
subject to the terms and conditions hereinafter set forth.

 

1.2                                 Full-Time
Employment.  Employee agrees to
devote his full time and attention to the performance of his duties as Chief
Executive Officer of Employer. 
Employee’s duties shall include, but not be limited to, the following:

 

(a)                                  General
supervision, direction, and control of the business and the officers of Employer,
subject to the control of the Board of Directors;

 

(b)                                 Preside
at all meetings of the shareholders and at all meetings of the Board of
Directors; and

 

(c)                                  Such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws of Employer.

 

2.                                       COMPENSATION

 

2.1                                 Salary.  Employer shall reimburse Employee for any
and all costs, fees and expenses incurred by Employee in the course of his
duties as Chief Executive Officer. 
Employee acknowledges that, due to Employer’s current financial
condition, Employer does not have sufficient funds to adequately compensate
Employee for his services.  Employer and
Employee agree that Employer shall pay Employee the salary of one hundred
thousand dollars ($100,000) per annum; provided that Employer and Employee
agree to negotiate a fair and equitable salary to compensate Employee for his
services, in accordance with the policies and procedures

 

 

established by the Board of Directors, at such time as Employer’s
financial condition improves.  Employer
shall pay Employee in accordance with Employer’s policies for the payment of
exempt, salaried employees in effect from time to time.  Salary payments shall be subject to
withholding for state and federal taxes and other authorized deductions.

 

2.2                                 Performance
Criteria.  Employer may determine
from time to time to pay Employee additional compensation/discretionary
bonus(es).  Any such determination shall
be made by the Compensation Committee, or similar committee, if any, of the
Board of Directors of Employer or, if there is no such committee, by the Board
of Directors of Employer.

 

2.3                                 Benefits.  During the term of this Agreement, Employer
shall provide Employee and his or her beneficiaries with certain employment
benefits, including but not limited to health insurance benefits.  However, Employer’s life insurance company
and/or disability insurer may require Employee to satisfactorily pass a
physical examination in order to issue a life insurance policy to Employee, and
Employee shall comply with all such reasonable requirements.  In addition, Employer may elect to obtain
key-man life insurance coverage on Employee, and Employee agrees to submit to
any required examination therefor. 
Employee shall be entitled to participate in Employer’s retirement and
other benefit plans as offered from time to time at a level commensurate with
the retirement benefits offered to Employer’s other employees.

 

3.                                       TERM AND
TERMINATION OF AGREEMENT

 

3.1                                 Contract
Term.  The initial term of this
Agreement shall commence on the Effective Date, and shall continue for a period
of three (3) years, subject to earlier termination of this Agreement as
provided herein.

 

3.2                                 Termination
Without Cause.  In the event
Employer terminates this Agreement or Employee’s employment hereunder without
“cause,” as defined in Paragraph 3.3 below, Employer agrees to pay Employee
$12,500 for each month of past service to Employer as Chief Executive Officer,
commencing as of July 31, 1996.

 

3.3                                 Termination
by Employer.  Employer may terminate
Employee’s employment hereunder at any time for “cause” by giving written
notice of termination to the defaulting party (the “Termination Notice”).  In the event such breach is not cured within
thirty (30) days after the giving of the Termination Notice, this Agreement
shall automatically terminate at the election of the Employer thirty (30) days
after the giving of the Termination Notice. 
Cause includes the following:

 

(a)                                  Upon
material violation by Employee of any provision of this Agreement.

 

(b)                                 Upon
total disability of Employee.

 

(c)                                  Upon
Employee’s conviction of a felony or crime of moral turpitude.

 

2

 

(d)                                 Upon
the use of alcohol or a controlled substance which materially impairs the
ability of Employee to effectively perform Employee’s duties and obligations
under this Agreement.

 

3.4                                 Termination
by Employee.  Employee may terminate
his employment hereunder at any time for “cause.”  Cause is limited to Employer’s breach of its obligation to
provide Employee with the compensation and benefits required pursuant to this
Agreement. In the event Employee terminates this Agreement for cause,
termination shall be effective immediately upon notification to Employer by
Employee.

 

4.                                       CONFIDENTIALITY/TRADE
SECRETS.  Employee
acknowledges that his position with Employer will be one of the highest trust
and confidence both by reason of his position and by reason of his access to
and contact with the trade secrets and confidential and proprietary business
information of Employer and all of its Affiliates (as defined below), during
the term of this Agreement and thereafter. 
Employee covenants and agrees during the term of this Agreement and
thereafter as follows:

 

4.1                                 Protection.  That Employee shall use his best efforts and
exercise utmost diligence to protect and safeguard the trade secrets and
confidential and proprietary information of Employer, its “Affiliates” (which
term as used in this Agreement shall include any person, corporation,
partnership, general partner or other entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with Employer) and its affiliated physician groups, including,
without limitation, their trade secrets, their proprietary information, the
identity of their customers and suppliers, the names, addresses and other data
relating to  patients of the affiliated
physician groups, their arrangements with their customers and suppliers,
utilization data and practice and referral patterns, provider contract terms,
provider manuals, terms of contracts between the affiliated physician groups
and any payor, financial and accounting information, pricing or fee
information, marketing methods or strategies and related data, and their
technical data, records, compilations of information, processes, computer
software, and specifications relating to their customers, suppliers, products
and services (collectively, “Confidential Information”).

 

4.2                                 Non-disclosure.  That Employee shall not disclose any Confidential
Information, except as may be required in the course of his employment or as
may be required by law.

 

4.3                                 Non-usage.  That Employee shall not use, directly or
indirectly, for his own benefit or for the benefit of another, any Confidential
Information.

 

The covenants contained in this Section 4 shall not be
applicable to any information which is in the public domain other than as a
result of action by Employee or which Employee can establish was obtained from
sources other than Employer, any of its Affiliates or its affiliated physician
groups, who are not under a duty of nondisclosure.  All Confidential Information and all files, records, documents,
drawings, specifications, computer software, memoranda, notes, or other
documents relating thereto or otherwise relating to the business of Employer,
its Affiliates or its affiliated physician groups, whether prepared by Employee
or otherwise coming into his 

 

3

 

possession, shall be the exclusive property of Employer (and/or its
Affiliates or its affiliated physician groups, as applicable) and shall be
delivered to Employer, its Affiliates or its affiliated physician groups as
appropriate and not retained by (nor any copies thereof retained by) Employee
upon termination of his employment for any reason whatsoever.

 

5.                                     NON-COMPETITION/NON-SOLICITATION.  Employee covenants and agrees that:

 

5.1                               Non-Competition.  So long as Employee is receiving any
compensation from Employer pursuant to this Agreement, Employee shall not,
without the prior written consent of Employer, directly or indirectly, as an
employee, employer, agent, principal, proprietor, partner, shareholder,
independent contractor, director, or corporate officer, engage in any business
or render any services to any business that is in direct competition with the
business of Employer or any of its affiliates within a ten (10) mile radius
area of any primary hospitals utilized in Employer’s or its affiliate
professional corporations’ HMO/IPA contract arrangements.

 

5.2                                 Non-Solicitation.  During the term of this Agreement and for a
period of two (2) years thereafter, Employee will not, directly or indirectly,
(i) hire or induce any party to recruit or hire any person who is an employee
or independent contractor of Employer or any subsidiary of Employer; (ii)
whether for itself or any other person or entity, solicit, divert or take away,
or attempt to solicit, divert or take away, any customers, business or clients
of Employer or any subsidiary or affiliated physician group of Employer
(including, without limitation, any third party payors); (iii) solicit or
induce any party to solicit, any contractors of Employer or any subsidiary of
Employer to enter into the same or a similar type of contract with any other
party; (iv) for himself or herself or for any other entity, solicit, divert or
take away or attempt to solicit, divert or take away any of the patients of an
affiliated physician group of Employer; or (v) disrupt, damage, impair or
interfere with the business of Employer.

 

5.3                               Modification.  If the scope of any restrictions contained
in Section 5 hereof are too broad to permit enforcement of such restrictions to
their full extent, then such restrictions shall be enforced to the maximum
extent permitted by law, and Employee hereby consents and agrees that such
scope may be modified accordingly in any proceeding brought to enforce such
restrictions.

 

6.                                       REMEDIES
FOR BREACH OF COVENANTS OF EMPLOYEE.  The covenants set forth in Sections 4 and 5 of this Agreement
shall continue to be binding upon Employee notwithstanding the termination of
his employment with Employer for any reason whatsoever.  Such covenants shall be deemed and construed
as separate agreements independent of any other provision of this Agreement.  The existence of any claim or cause of
action by Employee against Employer or any of its Affiliates, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by Employer or any of its Affiliates of any or all of such
covenants.  It is expressly agreed that
the remedy at law for the breach of any such covenant is inadequate and that
temporary and permanent injunctive relief shall be available to prevent the
breach or any threatened breach thereof, without the necessity of proof of
actual damages and without the necessity of posting a bond, cash or
otherwise.  In this connection, Employee
agrees not to assert any defense that monetary damages would be sufficient.

 

4

 

7.                                       ARBITRATION.  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.

 

(1)                                  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 7.  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.

 

(2)                                  There
shall be one arbitrator.  If the parties
shall fail to select a mutually acceptable arbitrator within ten (10) days
after the demand for arbitration is mailed, then the parties stipulate to
arbitration before a single arbitrator sitting on the Los Angeles, California
Judicial Arbitration Mediation Services (JAMS) panel, and selected in the sole
discretion of the JAMS administrator.

 

(3)                                  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.

 

(4)                                  The
substantive law and the Evidence Code of the State of California shall be
applied by the arbitrator.

 

(5)                                  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.

 

(6)                                  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.

 

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

 

5

 

(8)                                  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.

 

8.                                       MISCELLANEOUS.

 

8.1                                 Notices.  Any notice, demand, or communication
required, permitted or desired to be given hereunder shall be deemed
effectively given when personally delivered or mailed by prepaid certified
mail, return receipt requested, addressed as follows:

 

Employee:                                         Jacob Y.
Terner, M.D.

205 Chautauqua Boulevard

Pacific Palisades, California 90272

 

Employer:                                           Prospect
Medical Holdings, Inc.

515 South Flower Street

Suite 1640

Los Angeles, California  90071

Attention: President

 

8.2                                 Governing
Law.  This Agreement has been executed
and delivered and shall be interpreted, construed, and enforced in accordance
with the laws of the State of California.

 

8.3                                 Enforcement.  In the event that either party shall be
required to enforce the terms of this Agreement, whether with or without arbitration,
the prevailing party shall be entitled to recover the costs of such action,
including reasonable attorneys’ fees.

 

8.4                                 Entire
Agreement.  This Agreement shall
constitute the entire agreement of the parties with respect to the subject
matter hereof and may not be amended except in writing signed by both of the
parties hereto.  No oral statements or
prior written materials not specifically incorporated herein shall be of any
force or effect.

 

8.5                                 Severability.  In the event any provision of this Agreement
is held to be unenforceable or void for any reason, the remainder of the
Agreement shall be unaffected and shall remain in full force and effect in
accordance with its terms, unless such unenforceability or voidness defeats an
essential business term hereof.

 

8.6                                 Assignment.  Neither this Agreement nor any of the rights
of obligations of the parties hereunder shall be assignable by either party,
whether voluntarily or by operation of law. 
Any attempted assignment, transfer, pledge or hypothecation or other
disposition of this Agreement or of any such rights, interests and benefits
shall be null and void and without effect.

 

8.7                                 Binding
Effect.  This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, executors, administrators, successors
and permitted assigns.

 

6

 

8.8                                 Headings.  The headings used herein are for convenience
only and do not limit the contents of this Agreement.

 

8.9                                 Counterparts.  This Agreement may be executed in
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same agreement.

 

8.10                           Compliance
With Law.  The parties recognize
that this Agreement at all times is to be subject to applicable state, local
and federal law.

 

8.11                           Waivers.  The waiver of any of the provisions hereof
shall not be effective unless in writing and signed by the party intending to
be bound thereby.  The waiver by either
party of any act to be performed hereunder will not constitute a waiver of any
other act or identical act required to be performed at a later time.

 

8.12                           Representation.  Employee confirms that he is not represented
by Miller & Holguin and that he has been advised to seek the advice of
independent counsel in connection with the negotiation of this Agreement and
the transactions contemplated hereby.

 

IN WITNESS WHEREOF, this Agreement has been
executed by the parties as of the day and year first above written.

 

 

	
  PROSPECT MEDICAL HOLDINGS, INC.

  	
  JACOB Y. TERNER, M.D.

  
	
   

  	
   

  
	
  By:

  	
  /s/ R. Stewart Kahn

  	
   

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

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Executive Vice President

  	
   

  	
   

  

 

7Exhibit
10.13

 

AMENDMENT
TO EMPLOYMENT AGREEMENT

 

This Amendment to Employment Agreement
(“Amendment”) is effective as of the 1st day of August, 2002 (the
“Effective Date”) by and between Prospect Medical Holdings, Inc., a Delaware
corporation (“Employer” ) and Jacob Y. Terner, M.D. (“Employee”) with reference
to the following:

 

a.                                       Employer and Employee previously entered into
an Employment Agreement dated as of August 1, 1999 (the “Employment Agreement”)
providing for the employment of Employee at an annual salary of $100,000 for an
initial term of three (3) years, commencing August 1, 1999 and continuing until
July 31, 2002.

 

b.                                      Employer and Employee have agreed to (i)
extend the term of the Employment Agreement for an additional three (3) years,
and (ii) increase Employee’s salary to $150,000 per year commencing August 1,
2002 and ending August 1, 2005.

 

c.                                       By this Amendment, Employer and Employee
desire to modify the Employment Agreement to reflect the extension of the term
and the salary increase.

 

FOR GOOD AND VALUABLE CONSIDERATION, the
receipt of which is hereby acknowledged, Employer and Employee agree to and
hereby amend the Employment Agreement in the following respects.

 

1.                                      Basic Compensation of
Employee.  Section 2.1 of the Employment Agreement is
hereby amended to delete the reference to a base salary of $100,000 per annum
and is replaced with a base salary of $150,000.

 

2.                                      Effective Date of Salary
Increase.  The effective date of the salary increase
shall be August 1, 2002.

 

3.                                      Contract Term.  Section
3.1 of the Employment Agreement is hereby deleted in its entirety and replaced
with the following: “The initial term of this Agreement shall commence on the
Effective Date, and shall continue for a period of three (3) years, subject to
the earlier termination of this Agreement as provided herein.”

 

4.                                      Employment Agreement
Continued.  Except as modified by this Amendment, the
Employment Agreement is ratified and shall continue in all respects.

 

IN WITNESS WHEREOF, Employer and Employee
have executed this Agreement as of the date set forth above.

 

	
  “EMPLOYER”

  	
  “EMPLOYEE”

  
	
   

  	
   

  
	
  PROSPECT
  MEDICAL HOLDINGS,

  INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  R. Stewart Kahn

  	
  Jacob Y. Terner, M.D.

  
	
   

  	
  Executive Vice President

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