Exhibit 10.4

 

AMENDMENT TO MANAGEMENT SERVICES AGREEMENT

 

THIS AMENDMENT TO MANAGEMENT SERVICES AGREEMENT (this “Amendment”), is made and
entered into as of January 15, 2009, by and between PROSPECT MEDICAL SYSTEMS,
INC., a Delaware corporation (“Manager”), and PROSPECT HEALTH SOURCE MEDICAL
GROUP, INC., a California professional corporation (“Group”).

 

RECITALS

 

A.            Group and Manager entered into that certain Management Services
Agreement, dated as of January 1, 2001 (the “Initial Agreement”), as amended by
that certain Amendment to Management Services Agreement, dated November 1, 2002
(the “First Amendment” and the Initial Agreement as amended by the First
Amendment, the “Management Agreement”).

 

B.            The parties desire to amend and restate Exhibit C to the
Management Agreement as set forth in this Amendment.

 

NOW THEREFORE, the parties to this Amendment hereby agree as follows:

 

AGREEMENT

 

1.             Exhibit C (Management Fee) to the Management Agreement is hereby
amended to read, in its entirety, as follows:

 

“EXHIBIT C

 

MANAGEMENT FEE

 

A.                                   Definitions

 

“Cost of Medical Services” means with respect to Group, the aggregate
compensation of Group’s employed physicians and physician extenders (e.g.,
physician assistants and nurse practitioners); charges incurred by Group for
independent contractor physicians; the cost of services ordered by Group through
its physicians for managed care patients; and the cost of Group’s employee
benefits, including, but not limited to, vacation pay, employer and employee
contributions to any 401(k) plan or other retirement plan for the benefit of
Group employees, sick pay, health care expenses, Group’s share of employment and
payroll taxes, Group’s employees’ professional dues and all other expenses and
payments required to be made by Group to or for physicians pursuant to physician
employment, and independent contractor agreements (including expense
reimbursements, discretionary bonuses, incentives based on profitability or
productivity, and payments paid and accrued or deferred).

 

 “Gross Revenues” means all sums which are (i) attributed to Group (determined
on an accrual basis) as compensation for the provision of medical services by
Group employed and independent contractor physicians and physician extenders,
including, but not limited to, all capitated income, all rights to receive
Group’s portion of hospital and other shared risk pool payments, all

 

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copayments, coordination of benefits, third party recovery, insured services,
enrollment protection (or other such revenue as is available to replenish
capitated services) and all rights to receive fee-for-service income for
medical, diagnostic and therapeutic services provided to Group patients; and/or
(ii) derived by Group or its employees other than from the provision of medical
services, including, but not limited to, consulting services, insurance and
legal recoveries, royalties and licensing payments, franchise payments, rents
and lease payments, and proceeds from the sale of assets or the merger or other
business combination of Group.

 

“Net Pre-Tax Income” means Gross Revenues less the Cost of Medical Services
after provision of any physician incentive payments but before provision for
income taxes.

 

“Net Pre-Tax Loss” means any loss resulting after the deduction from Gross
Revenues of the Cost of Medical Services after provision of any physician
incentive payments but before provision for income taxes.

 

“Net Pre-Tax Profit” means any profit resulting after the deduction from Gross
Revenues of the Cost of Medical Services after provision of any physician
incentive payments but before provision for income taxes.

 

B.           Management Fee

 

Base Management Fee.  For its services hereunder, which shall include the
provision of all necessary facilities and furniture, fixtures and equipment and
all non-physician employees of Manager who perform services for Group and all
management services provided hereunder, Manager shall be entitled to receive
(i) fifteen percent (15%) of Gross Revenues (the “Management Fee”) plus (ii) a
fee for marketing and public relations services in the amount of four thousand
dollars ($4,000) per month.  Notwithstanding the foregoing, if Group’s working
capital is insufficient to meet Group’s liabilities or other obligations to the
extent necessary to meet such obligations, the Management Fee provided for in
item (i) above shall be deferred until Group is able to meet all such
obligations.  The Management Fee shall be reviewed on an annual basis by
Manager’s Board of Directors to ensure that it remains consistent with the fair
market value for the services rendered to Group by Manager.

 

Performance Incentive Bonus Payment.  If, at the end of Group’s fiscal year, it
is determined that Group has a Net Pre-Tax Profit for the year, Manager shall be
entitled to a performance incentive bonus payment consistent with the fair
market value of the services provided by Manager to Group (as determined on an
annual basis by the Board of Directors of Manager), but no more than fifty
percent (50%) of Net Pre-Tax Income in excess of eight percent (8%) of Net
Pre-Tax Profits.

 

Performance Incentive Penalty Payment.  If, at the end of Group’s fiscal year,
it is determined that Group has a Net Pre-Tax Loss for the year, Manager shall
be obligated to pay to Group (in the form of a reduction in

 

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future management fees) a penalty payment in the amount of fifty percent (50%)
of one hundred percent (100%) of such Net Pre-Tax Loss.”

 

2.             The parties hereto expressly agree and acknowledge that the
foregoing amended and restated Exhibit C shall replace in its entirety the
amended and restated Exhibit C that was set forth in the First Amendment.

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
day and year first above written.

 

 

“Manager”

 

 

PROSPECT MEDICAL SYSTEMS, INC.

 

 

 

 

 

 

 

 

By:

   /s/ Samuel S. Lee

 

Name: Samuel S. Lee

 

 

Title: Chairman

 

 

 

 

 

 

 

 

“Group”

 

 

PROSPECT HEALTH SOURCE MEDICAL GROUP, INC.

 

 

 

 

 

 

 

 

By:

   /s/ R. Stewart Kahn

 

Name: R. Stewart Kahn

 

 

Title: Senior Vice President

 

 

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