Cto Employment Agreement

EMPLOYMENT AGREEMENT


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This Employment Agreement (the "Agreement"), is made as of October 1, 1996, by and between FPA Medical Management, Inc., a Delaware corporation (the "Company"), and Sol Lizerbram ("Employee").


1. EMPLOYMENT DUTIES.


(a) Capacity. The Company shall employ Employee, and Employee shall serve as Chairman of the Company, on the terms and subject to the conditions set forth in the Agreement.


(b) Scope and Duties. Employee shall perform such executive and managerial duties as normally associated with the position of chairman and shall report solely to the Board of Directors of the Company (the "Board"). The duties of Employee shall be performed primarily in San Diego, California, except for such travel in the ordinary course of the business of the Company as may from time to time be reasonably required. Employee's principal place of business shall be at the offices of the Company in San Diego, California.


(c) Permitted Activities. Employee shall devote substantially all of his business time to his obligations to the Company pursuant to the Agreement, and shall not, without the approval of the Board, render services of a business nature to any other person or entity, if such activities would materially interfere with the performance of Employee's duties under the Agreement; provided, however, that none of the following activities (collectively, "Permitted Activities") shall be deemed to be in violation of the Agreement: (i) owning or managing real or personal property owned by the Employee or his family members; (ii) owning any business which does not compete, directly or indirectly, with the Company, so long as such interests are held only for investment purposes; (iii) owning up to five percent (5%) of any class of any corporation's outstanding securities which are listed on any national securities exchange, registered under Section 12(g) of the 2
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Securities Exchange Act of 1934, as amended, or otherwise regularly traded in the over-the-counter market; (iv) holding directorships or similar positions in any organization which is not competing with the Company and which is approved by the Board, which approval shall not be unreasonably withheld but which shall not be required with respect to charitable activities and community affairs referred to in (v) below; and (v) engaging in charitable activities and community affairs.


2. TERM OF EMPLOYMENT.


(a) The term of Employee's employment under the Agreement will commence on the date of the Agreement and continue for a period of five (5) years thereafter, unless terminated sooner pursuant to Section 4 hereof or extended pursuant to the immediately succeeding sentence. On September 30, 2000, and on each subsequent anniversary thereof, the term of Employee's employment shall be extended for a period of one (1) year unless, no later than six (6) months prior to such September 30 or, if applicable, any extended term, either party shall have given written notice to the other that it does not wish to extend the term of the Agreement.


(b) Notwithstanding the preceding paragraph, the term of employment shall not be extended beyond the seventh anniversary of the date of the Agreement without the prior written consent of both parties hereto. However, if the Employer does not offer to extend the term of employment beyond the seventh anniversary of the date of the Agreement, beginning on such seventh anniversary, the Company shall pay and otherwise make available to Employee (or his estate) all compensation and benefits (including the Severance Benefits defined hereinafter) referred to in Section 4(a)(ii), or, if the seventh anniversary occurs within the period described in Section 4(a)(iii) hereof, the Severance Package (defined hereinafter) referred to in Section 4(a)(iii) and, if applicable, the Gross-Up Payment referred to in Section 4(a)(iii)(E).


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3. COMPENSATION AND OTHER BENEFITS.


(a) Base Salary. As compensation for his employment under the Agreement, the Company shall pay to Employee a base salary at the rate of Four Hundred Forty-Five Thousand Dollars ($445,000) per year. Employee's base salary shall be paid in equal, bimonthly installments. Employee's base salary shall be increased from time to time by the Company but, once increased, shall not thereafter be decreased.


(b) Performance Bonuses. Employee shall be entitled to an annual bonus of up to one hundred fifty percent (150%) of base salary based on the increase in the Company's earnings per share (excluding non-recurring charges) ("EPS") on a year-to-year basis. For each one percent (1%) increase in EPS, Employee shall be entitled to a bonus of fifteen percent (15%) of base salary up to a maximum bonus of one hundred fifty percent (150%) of base salary. Bonuses shall be paid within thirty (30) days from the completion of the Company's audited financial statements for the applicable fiscal year.


(c) Other Benefits. During the term of Employee's employment under the Agreement or in accordance with the terms of Sections 3(d) or 4 of the Agreement:


(i) Other Bonus. Notwithstanding Section 3(b) of the Agreement, lump sum cash bonuses payable to Employee or stock option grants may from time-to-time be authorized by the Compensation Committee of the Board, at its sole discretion.


(ii) Benefit Plans, Medical Expense Reimbursement and Other Perquisites.


(A) Employee (and his dependents, where applicable) shall be entitled to participate and shall be included in any employee benefit plans, programs, policies and arrangements of the Company, in-


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cluding, but not limited to, any group health and life insurance, 401(k), profit sharing, SEPP, stock option or other plans now existing or hereafter established which are generally made available to senior management-level employees of the Company, but the execution of the Agreement shall not prevent the Company from amending, modifying or terminating any such employee benefit plan, program, policy or arrangement provided the benefits provided to Employee as of the date hereof considered as a whole shall not be reduced by such amendment, modification or termination. Employee shall also be provided with all perquisites now existing or hereafter made available to senior management-level employees of the Company.


(B) The Company shall pay on behalf of the Employee or reimburse Employee for any and all medical or dental expenses incurred by Employee or his dependents that are not covered by the insurance plans of the Company.


(iii) Disability Plan. The Company shall maintain in effect for Employee a long-term disability, "own-occupation" portable insurance policy with annual disability benefits of not less than sixty percent (60%) of Base Salary in effect at the time of the disability commencing not more than six (6) months after the date of Employee's disability determined in accordance with Section 3(d) of the Agreement. To the extent insurance cannot be purchased in such amount, the Company shall self insure the difference. The execution of the Agreement shall not prevent the Company from amending, modifying or terminating any disability plan provided that the benefits provided to Employee under this Section 3(c)(iii) as of the date hereof considered as a whole shall not be reduced by such amendment, modification or termination. Employee shall pay the premiums associated with such policies. Such premiums shall be reimbursed by Company to Employee as additional taxable compensation. The amount of the Company's premium reimbursement shall be grossed up for state and federal income and employment


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taxes so that the net taxable effect to Employee is zero with respect to the premiums and tax gross-up thereon.


(iv) Life Insurance.


(A) The Company shall maintain during the term of Employee's employment hereunder one or more life insurance policies insuring the life of Employee in the aggregate principal amount of Two Million Dollars ($2,000,000), with the beneficiary or beneficiaries of such policy or policies being those persons who are so designated from time to time by Employee.


(B) Employee understands that the Company may determine to purchase a key-man life insurance policy on the life of Employee. Employee agrees to fully cooperate with the Company, submitting to reasonable physical examinations if required to do so by the insurance carrier or another entity. Employee acknowledges that (x) the Company shall be responsible for any premiums due on any key-man life insurance policy, (y) all incidents of ownership in any key-man life insurance policy on the life of Employee are held by the Company, and (z) the Company is the sole beneficiary of any such policy or shall appoint, in its sole discretion, a beneficiary. The inability of the Company to secure any such policy shall not affect the obligations of the Company hereunder.


(v) Professional Fees and Clubs. The Company shall provide Employee with a maximum of Fifteen Thousand Dollars ($15,000) each year during the term of the Agreement for personal financial, tax and legal counseling or fitness club, social club, or similar benefits.


(vi) Vacation. Employee will be entitled to accrue vacation at the rate of five (5) weeks per calendar year. During periods of vacation, Employee's compensation shall be paid in full, and any vacation day


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unused as of the end of any calendar year shall be accumulated and carried forward, and may be used in any future years, provided that no more than ten (10) weeks vacation may be taken by Employee in any calendar year.


(d) Salary and Benefit Continuation. The Company shall continue to pay to Employee all compensation and all benefits set forth in Sections 3(a), 3(c)(i), (ii), (iv), (v) and (vi), from the date Employee is declared permanently and totally disabled and unable to perform the duties required under the Agreement, until the date on which Employee commences to receive benefits under the long-term disability plan provided pursuant to Section 3(c)(iii).


Following commencement of the payment of benefits under Section 3(c)(iii), the Company will pay to Employee fifty percent (50%) of Employee's annual base salary as set forth in Section 3(a) for an additional thirty-six (36) consecutive months, regardless of the then-remaining term of Employee's employment under the Agreement. Furthermore, in the event of such disability:


(i) the benefits described in Sections 3(c)(ii) and 3(c)(iv) will continue as if Employee had continued to render services pursuant to the Agreement and shall remain in effect for a minimum of thirty-six (36) calendar months after the date of any such disability;


(ii) the benefits described in Section 3(c)(v) will continue to the extent that any portion of the allowance for professional fees and clubs set forth in such Section 3(c)(v) remains unused for the calendar year in which such disability occurs and the Company shall not be entitled to reimbursement of any such allowance paid prior to the disability.


To the extent the Company may not continue the benefits described in this Section 3(d) after termination of employment for legal or insurance underwriting


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reasons, the Company shall provide comparable benefits through the purchase of individual coverage or from its general assets. To the extent benefits after termination of employment are limited or reduced under a retirement plan qualified under Section 401 of the Internal Revenue Code, such benefits shall be informally funded into a grantor trust established by the Company with distribution and investment options comparable to those available under a Company's qualified retirement plan.


For purposes of this Section 3(d), the determination of whether or not Employee is declared permanently and totally disabled shall be made by Employee's physician, by written notice to the Board. If the Board disagrees with the determination by Employee's physician, the Board will appoint, at the Company's expense, another physician to make such determination. If the physician so appointed by the Board disagrees with the determination made by Employee's physician, then the two physicians shall appoint a mutually acceptable third physician, at the Company's expense, to make the final determination of whether Employee is permanently and totally disabled, which determination will be binding on all parties hereto.


4. TERMINATION PROVISIONS.


(a) Termination by Company and by Employee Under Certain Circumstances.


(i) Employee's employment under the Agreement may be terminated by the Company for Cause (as hereinafter defined) following thirty (30) days' written notice from the Company to Employee. For purposes of the Agreement, "Cause" means (A) Employee's conviction for the commission of a felony other than a traffic violation; (B) any willful or grossly negligent act by Employee having the effect of materially injuring the reputation or business of the Company; or (C) the willful and continued failure by Employee to substantially perform his duties hereunder (other than by reason of inca-


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pacity due to physical or mental illness) after a written demand for substantial performance is delivered by the Board, which demand specifically identifies the manner in which the Board believes that the Employee has not substantially performed the Employee's duties and which failure is not cured within twenty (20) days after notice of such failure has been given to Employee. For purposes of clauses (B) and (C) above, (x) no act, or failure to act, on the Employee's part shall be deemed "willful" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that the Employee's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes by clear and convincing evidence that Cause exists.


(ii) If Employee's employment under the Agreement is terminated by the Company for other than Cause, or by the Employee pursuant to Section 4(b)(i) of the Agreement, then unless Section 4(a)(iii) hereof shall apply:


(A) the Company will pay to Employee (or his estate) the sum of (1) Employee's monthly base salary at the base salary rate in effect immediately prior to the date of termination (without regard to any decrease in such base salary giving rise to Employee's voluntary termination pursuant to Section 4(b)(i) hereof) plus (2) one-twelfth (1/12) of the performance and any other bonuses paid or payable to Employee in respect of the Company's fiscal year immediately preceding the date of termination. For purposes of clause (2) of the preceding sentence, to the extent Employee's bonus for such preceding year was payable in the form of a grant of options to acquire Company stock ("Options"), such bonus shall be deemed to be equal to one hundred twenty percent (120%) of the cash amount that would otherwise have been payable to the Employee as a cash bonus but for the payment of such bonus in the form of a grant of Options.


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The amounts determined hereunder shall be payable on a monthly basis for a period of thirty-six (36) months following the date of termination;


(B) the Company shall continue to pay for and provide Employee with benefits set forth in Section 3(c) (other than Sections 3(c)(i) and 3(c)(vi)) during the period that Employee is receiving the amounts described in clause (A) above, provided that, the Company shall prepay all remaining premiums on a paid-up basis under any insurance policy in effect between the Employee and the Company insuring the life of the Employee and shall transfer to the Employee any and all rights and incidents of ownership in such arrangements or at the Company's election, the Company shall purchase an individual whole life policy for an equivalent face value, pay the projected premium costs in advance and transfer such policy to Employee, and, further provided that, all Employee stock options shall be immediately and fully vested and exercisable and all Employee stock awards shall be immediately and fully vested. To the extent the Company may not continue the benefits described herein after termination of employment for legal or insurance underwriting reasons, the Company shall provide comparable benefits through the purchase of individual coverage or from its general assets. To the extent benefits after termination of employment are limited or reduced under a retirement plan qualified under Section 401 of the Internal Revenue Code, such benefits shall be informally funded into a grantor trust established by the Company with distribution and investment options comparable to those available under the Company's qualified retirement plan; and


(C) the Company shall pay to the Employee, in a lump sum, a payment in settlement of all accrued but unused vacation days as of the date of termination, plus a pro rata performance bonus for the year in which occurs the date of termination, such bonus to be determined by multiplying (1) the performance bonus that would have been payable under Section 3(b) hereof in


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