Exhibit
10.10


 


MANAGEMENT
SERVICES AGREEMENT


 


This
Management Services Agreement (“Agreement”) is made and entered into as of
August 1, 1999 by and between PROSPECT MEDICAL SYSTEMS, INC., a Delaware
corporation (“Manager”), and Nuestra Familia Medical Group, a California
Professional Corporation (“Group”).


 


RECITALS


 


A.                                   Group is a California Professional
Corporation duly organized under the laws of the State of California and
operated as a medical group and independent Group association.


 


Group has entered into agreements with various
Health Plan for the arrangement of the provision of health care services to
subscribers or enrollees of the Health Plan (“Health Plan”).


 


B.                                     Manager has special expertise and experience
in the operation, management and marketing aspects of independent Group
associations and medical groups of the type operated or intended to be operated
by Group.  Manager has made a
significant investment in the development of a system of operations, management
and marketing necessary for management of the functions desired by Group to be
undertaken by Manager; and


 


C.                                     Group desires to devote all of its time to
arranging for the delivery of health care services to Health Plan subscribers
or enrollees, and in connection therewith desires to obtain the professional
assistance of Manager in managing the business aspects of the Group.


 


D.                                    Manager proposes to provide Group with the
necessary support to manage the business aspects of the Group, including but
not limited to clerical and billing services, claims pursuit and collection,
capitation payments, cash flow management, marketing and general administrative
services (collectively, “Management Services”), to enable Group to concentrate
on the development of the professional aspects of the Group.


 


NOW, THEREFORE, in consideration of the mutual
covenants and conditions hereinafter set forth and in exchange for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:


 


AGREEMENT


 


1.                                      MANAGER’S RESPONSIBILITIES.


 


1.1.                              During the term of this Agreement, Group
appoints and engages Manager to serve as its exclusive manager and
administrator of all non-physician functions and services relating to the
operation of the Group, and Manager agrees to furnish to Group those


 


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Management
Services set forth below. 
Notwithstanding such appointment and engagement, Group will have
exclusive authority and control over the professional aspects of the
Group.  The spirit of this agreement
sets forth the Manager’s responsibilities, and those responsibilities shall be
performed to the standard of the community, regulatory and health plan
requirements and to the Group’s satisfaction. 
The Manager shall also be responsible for meeting all appropriate
regulatory requirements.


 


1.1.1.                     General Administrative
Services.  Manager shall provide general business
management, administration and supervision for the business operations of
Group, which shall include secretarial and other office personnel support
services, staff support for GROUP’S Board of Directors and committee meetings,
administrative record keeping, and other similar administrative services
required in the day-to-day operation of Group.


 


1.1.2.                     Accounting and Financial
Management Services.  Manager shall, with Group approval not
unreasonably withheld, provide the following accounting and financial
management services:


 


1.1.2.1.            Manager shall, with Group’s approval
establish bank accounts in the name of Group (“Accounts”) for the deposit of
all sums received by Group for services provided to Members.  Group agrees that Manager shall have the
authority to endorse all checks made payable to Group and deposit checks and
funds received by Group in aforementioned accounts.  Manager shall further have the authority to make transfers of
funds to aforementioned accounts and further, Manager shall have the authority
to sign checks and stop payment on any checks drawn on aforementioned accounts.


 


1.1.2.2.            Manager agrees to reconcile checks written
with bank statements on a monthly basis;


 


1.1.2.3.            Manager agrees to make recommendations
regarding check signature approvals and banking procedures of Group;


 


1.1.2.4.            Manager agrees to prepare balance sheets and
income statements on a monthly basis during the term of this Agreement.  Such financial statements shall not be
audited statements.  Manager agrees to
cooperate with any annual audit Group obtains at its sole cost and expense by
an independent public accountant selected by Group;


 


1.1.2.5.            Manager shall receive and deposit on a timely
basis capitation and other payments received by Group;


 


1.1.2.6.            Manager shall, in a timely fashion, calculate
primary care capitation and specialty, ancillary and other payable claims based
on the records


 


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provided
by Health Plan and shall prepare checks to pay such amounts due and shall mail
said payments to the respective providers; pursuant to their respective
contracts.


 


1.1.2.7.            Manager shall monitor Health Plan subscribers
or enrollees exceeding stop loss deductibles and communicate with health plans
in writing to seek reimbursement on behalf of Group;


 


1.1.2.8.            Manager shall bill other payors for
coordination of benefits and other third party liability payments according to
the terms of the Health Plan/GROUP Agreements;


 


1.1.2.9.            Manager shall administer capitation and other
distributions from Health Plan including auditing and monitoring of risk pools,
negotiation settlement of Group’s share of such pools and establishment and
maintenance of incurred but not reported (“IBNR”) reserves for Group;


 


1.1.2.10.      Manager shall monitor any other revenue
receipt programs Health Plan may have, including but not limited to
pre-existing pregnancy recovery, and seek reimbursement from Health Plan;


 


1.1.2.11         Manager shall establish and adjust reserves
for medical expenses.


 


1.1.2.12         Manager will provide to the Board of Directors financial reports,
quarterly or otherwise as appropriate, identifying revenues, any earned
interest, and IBNR reserves.  A
reporting on the status of the shared risk pool will be made as available to
the manager and as appropriate. 
Information concerning risk pool distributions will be forwarded to the
Board no later than four months past the close of the business year.


 


1.1.2.13         Manger shall have the authority to write
checks on behalf of the Group to
carry out the Group’s business pursuant to this agreement, and any other
agreements that may be arrived at in the future.


 


1.1.2.14         Manager shall have the authority to commit to
expenditures up to $2,500 in any areas appropriate to carry on the business of
the Group.  Any expenditures over $2,500
shall have Board approval.  This shall
apply to all areas except provider payments, facility payments, ancillary
health care provider payments and other approved contractual obligations, for
which Manager shall not have a limit or restriction applied.


 


1.1.3.  Office Service; Billing.  Manager shall provide bookkeeping and accounting
services, including, without limitation, maintenance, custody and supervision
of Group’s business records, papers and documents, ledgers, journals and
reports, and the preparation, distribution and recording of all bills and
statements for professional services


 


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rendered
by Group, as well as all reports and forms required by applicable third party
payors.  Group shall at all times have
the ultimate responsibility for setting all fees for all professional services
rendered to patients of the Group.  All
billings for services rendered to patients by the Group shall be made under
Group’s name and provider number(s), and Manager shall act as Group’s agent in
the preparation, rendering and collection of such billings.  Group hereby appoints Manager for the term
hereof as its true and lawful agent for the following purposes:


 


1.1.3.1.            to collect accounts receivable generated by
billings in Group’s name and on Group’s behalf;


 


1.1.3.2.            to submit, process and collect all claims for
payment to, and receive on behalf of Group payments from Health Plan;


 


1.1.3.3.            to operate the account, endorse and deposit
in the name and on behalf of Group to one or more Accounts designated by Group
any notes, checks, money orders, and insurance payments.


 


1.1.3.4.            to collect in Group’s name and on its behalf
all collections of Gross Revenues (as defined in Exhibit “B” hereto).


 


1.1.4.                     Claim Settlement; Exculpation.  Group acknowledges and agrees
that Manager shall have discretion to compromise, settle, write off or
determine not to appeal a denial of any claim for payment for any particular
professional service rendered at the Group.


 


1.1.5.                     Financial Reports.  Manager shall furnish to Group monthly and annual financial reports
reflecting the Group’s financial status, provided that Manager shall have no
obligations with respect to any shareholder’s of Group personal finances or any
tax returns of the Group or any shareholder of Group.


 


1.1.6.                     Provider Contract Administration.  During the term of this
Agreement, Manager shall provide the following provider contract administration
services to Group:


 


1.1.6.1.            Identify and solicit participation of health
care providers identified by the Group as necessary for health plan
contracting;


 


1.1.6.2.            Identify and execute the business terms of
agreements between Group and Participating Providers;


 


1.1.6.3.            Identify and execute agreements regarding
compensation to Participating Providers;


 


1.1.6.4.            Make recommendations regarding the definition
of primary, specialty and ancillary services;


 


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1.1.6.5.            Instruct all Participating Providers and
their office staff regarding established Group policies and procedures at least
annually during the term of this Agreement.


 


1.1.6.6.            With Group approval not unreasonably
withheld, coordinate and execute the preparation, negotiation and renewal of
Group Participating Provider Agreements.


 


1.1.7.                     Administer Member
Eligibility Process.  Manager shall provide the following services
regarding administration of the member eligibility process:


 


1.1.7.1.            Maintain, update and reconcile a current
eligibility list to Health Plan subscribers and enrollees under the Health Plan
agreement.


 


1.1.7.2.            Verify eligibility on claims and referrals
based on the most current information provided by Health Plan;


 


1.1.7.3.            Administer system for retroactive eligibility
determination and assist Group in identifying outstanding accounts receivable
from ineligible patients.


 


1.1.8.                     Utilization Management/Quality
Assurance.  Manager agrees to provide the following
services regarding utilization management and quality assurance.


 


1.1.8.1.            Manager shall develop a policy outlining the
structure and functions of a Group utilization and quality management plan
after reviewing Health Plan’s requirements. 
Group agrees, following review of Manager’s recommendations, to adopt a
Group utilization and quality management plan that includes a list of services
for which Manager has received authority from Group to authorize services
provided.  In authorizing said services,
Manager shall be the agent of Group;


 


1.1.8.2.            Manager shall implement systems, programs and
procedures necessary for Group and Participating Providers to perform
utilization and quality management.


 


1.1.8.3.            Manager shall recommend procedures for prior
authorization of elective, urgent and emergent outpatient ambulatory surgery
and hospital procedures;


 


1.1.8.4.            Manager shall assist Group with prospective,
concurrent and retrospective review of medical procedures in accordance with
Group policies and Health Plan requirements;


 


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1.1.8.5.            Manager shall provide data regarding the use
of outpatient and inpatient services by provider to Group;


 


1.1.8.6.            Manager shall provide data regarding the use
of non-contracting providers;


 


1.1.8.7.            Manager shall provide secretarial support,
logs, and minutes to the Medical Director and the UR/QA Committee of Group;


 


1.1.8.8.            Manager shall assist Medical Director and the
UR/QA Committee in responding to Health Plan Member grievances based on the
instructions of the Medical Director;


 


1.1.8.9.            Manager shall provide the credentialing
process to the Group to conduct and to assure that providers have current
licenses and medical staff privileges.


 


1.2.                              Personnel.  Manager shall employ or contract with and provide all necessary
non-physician personnel, including quality assurance, utilization review,
claims processing, secretarial and clerical personnel as are reasonably necessary
for the conduct of the Group (collectively, “Manager Personnel”).  Manager shall, in its sole and absolute
discretion, determine the types and numbers of personnel and the number of
hours and schedules of said personnel it determines are necessary or appropriate
to provide the administrative and management services to be provided pursuant
to this Agreement.  Manager shall
provide such personnel at its sole cost and expense and such personnel may, at
the sole and absolute discretion of Manager, be employees or independent
contractors of Manager.  Manager shall
have sole control over promotion and employee disciplinary and termination
matters with respect to Manager Personnel, and shall not be responsible for any
accrued vacation, paid time off or other benefits to such individuals that have
accrued prior to the date that Manager engages them as its  employees.


 


1.3.                              All professional medical and health care
services provided to subscribers or enrollees shall be the ultimate
responsibility of the Group’s Participating Providers.  Group shall use its best efforts to cause
Participating Providers to cooperate with Manager in the implementation of the
protocols, programs, policies, and procedures developed for Group by Manager.


 


1.4.                              Manager is hereby expressly authorized by
Group to perform all services required of Manager pursuant to the terms of this
Agreement.  To the extent required or
desirable to enable Manager to perform such services, Group hereby appoints
Manager for the term hereof as its true and lawful agent.  Group acknowledges and agrees that Manager
may subcontract with other persons or entities, including entities related to
Manager by ownership or control, to perform any part of the services required
of Manager hereunder.  Manager


 


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agrees
that the entire contract may not be subcontracted out to another unrelated
party.  In such a case, Group reserves
the right to decline such an assignment.


 


1.5.                              Notwithstanding any other provision contained
herein, Manager shall not be liable to Group and shall not be deemed to be in
default hereunder for the failure to perform or provide any of the services,
personnel or other obligations to be performed or provided by Manager pursuant
to this Agreement if such failure is a result of an act(s) of God, or any other
event which is beyond the reasonable control of Manager or which was not
reasonably foreseeable by Manager.


 


2.                                      RESPONSIBILITIES OF GROUP.


 


2.1.                              Group covenants and agrees that, at all times
during the term of this Agreement and any extension thereof, it shall conduct
all activities required by its Group Agreement.  In addition, Group agrees to appoint a Medical Director.  Group shall be solely responsible for
payment of any and all compensation, payroll taxes, fringe benefits, disability
insurance, workers’ compensation insurance and any other benefits of such
Medical Director.


 


2.2.                              Group shall not enter into any agreements
with Participating Providers unless such Participating Providers have: (i)
current unrestricted licenses to practice their respective professions in the
State of California and (ii) current unrestricted Federal Drug Enforcement
Agency (“DEA”) numbers.  In addition,
where Group contracts with individual physicians, such physicians shall have
medical staff membership at the hospitals required by Health Plan and where
Group contracts with licensed clinics and medical groups, at least one primary
care physician practicing at each clinic or medical Group shall have medical
staff membership at the hospitals required by Participating Plans.  Group further agrees to establish policies
that Manager can carry out to ensure that Participating Providers meet these
requirements on an ongoing basis.


 


2.3.                              Group acknowledges and agrees that it is solely
responsible for making all required reports to the Medical Board of California
under Section 805 of the California Business and Professions Code and the
National Practitioner Data Bank.


 


2.4.                              Group shall, at its sole cost and expense,
procure and maintain at all times during the term of this Agreement
comprehensive general and professional liability insurance coverage for all
activities of Group directly or indirectly relating to Group.  Each policy in a minimum amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate.  The aforedescribed comprehensive general and
professional liability insurance shall be issued by a company or companies
authorized to do business in California with a financial rating of at least
A:12 or better in “Best’s Key Rating Guide” or its equivalent.  In the event Group procures a “claims made”
policy as distinguished from an “occurrence” policy, Group shall procure and
maintain at its sole cost and expense, prior to termination of such insurance,
“tail” coverage to continue and extend coverage complying with this Agreement
after the end of the


 


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“claims
made” policy.  Upon reasonable request
from Manager, Group shall cause to be issued to Manager proper certificates of
insurance, evidencing that the foregoing provisions of this Agreement have been
complied with, and said certificates shall provide that prior to any
cancellation or change in the underlying insurance during the policy period,
the insurance carrier shall first give thirty (30) calendar days written notice
to Manager.


 


2.5.                              Group shall, at its sole cost and expense,
including, but not limited to, the payment of all salaries or independent
contractor fees, benefits, medical malpractice insurance, employ or contract
with such physicians as shall be reasonably necessary for the conduct of the
Group.


 


2.6.                              Group shall require that Participating
Providers procure and maintain professional liability insurance with minimum
coverage amounts of $1,000,000 per occurrence and $3,000,000 in the
aggregate.  Group shall ensure that any
Participating Provider who procures insurance required hereunder on a “claims
made” rather than an “occurrences” form will obtain either extended reporting
insurance coverage (“tail coverage”) with liability limits equal to those most
recently in effect prior to the day of termination of such Participating
Provider’s contract with Group, or will enter into such other arrangements as
shall reasonably assure the maintenance of coverage for such Provider, Group,
and Manager against the risk of loss in respect of professional services
rendered by such provider while this Agreement was in effect and for a period
of not less than seven (7) years after the date of termination of this
Agreement.


 


2.7.                              Group acknowledges and agrees that it shall
reasonably assist and cooperate with Manager to meet all of Manager’s
obligations under this Agreement, including approval of agreements and
provision of information.  Group acknowledges
and agrees that Manager shall have no liability for Group’s failure to pay any
and all of Group’s debts and expenses, unless that failure to pay its debts and
expenses is directly related to a material breach of this contract by the
manager.


 


3.                                      TERMS; TERMINATION.


 


3.1.                            Term.  The term of this Agreement (the “Term”) shall
commence on the date hereof and shall expire on July 31, 2009, the tenth
(10th) annual anniversary hereof unless earlier terminated as provided
below.  The term of this Agreement shall
be automatically extended for additional terms of one (1) year each, unless
either party delivers to the other party, not less than one hundred eighty
(180) days prior to the expiration of the preceding term, written notice of
such party’s intention not to extend the term of this Agreement.


 


3.2.                            Termination for Cause.


 


3.2.1.                     Manager may terminate this Agreement for
cause at any time during the Term upon sixty (60) days written notice (except
as otherwise provided below).  For
purposes of this Section 3.2.1 “cause” shall include, without limitation,
the following:


 


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3.2.1.1.            If Group fails to materially perform any
obligation required hereunder, and such default shall continue for sixty (60)
calendar days after written notice from Manager specifying the nature and
extent of failure to materially perform such obligation, this Agreement shall
terminate automatically and immediately upon the expiration of said sixty (60)
calendar day period; provided, however, that if the obligation which Group
fails to perform is other than the failure to make payment of money, and
greater than sixty (60) calendar days are required to perform said obligation,
then such party shall not be in default of this Agreement and the Agreement
shall not terminate as provided hereinabove if such party commences performance
within said sixty day period and diligently pursues said obligation to
completion.


 


3.2.1.2.            In the event the performance by either party
hereto of any term, covenant, condition or provision of this Agreement should
be determined by a state or federal court or governmental agency or court of
law to be in violation of any statute, ordinance, or be otherwise deemed
illegal (“Jeopardy Event”), then the parties shall use their best efforts to
meet forthwith and attempt to negotiate an amendment to this Agreement to
remove or negate the effect of the Jeopardy Event.  In the event the parties are unable to negotiate such an
amendment within thirty (30) days following written notice by either party of
the Jeopardy Event, then either party may terminate this Agreement immediately
upon written notice.


 


3.2.2.                     Group may terminate this Agreement for cause
at any time during the Term immediately upon written notice (except as
otherwise provided below).  For purposes
of this Section 3.2.2 “cause” shall include, without limitation, the
following:


 


3.2.2.1.            If Manager fails to materially perform any
obligation required hereunder, and such default shall continue for sixty (60)
calendar days after written notice from Group specifying the nature and extent
of failure to materially perform such obligation, this Agreement shall
terminate automatically and immediately upon the expiration of said sixty (60)
calendar day period; provided, however, that if the obligation which Manager
fails to perform is other than the failure to make payment of money, and
greater than sixty (60) calendar days are required to perform said obligation,
then such party shall not be in default of this Agreement and the Agreement
shall not terminate as provided hereinabove if such party commences performance
within said sixty day period and diligently pursues said obligation to
completion.


 


3.2.3.                     Either party may terminate this Agreement for
cause at any time during the Term immediately upon written notice.  For purposes of this Section 3.2.3
“cause” shall include, without limitation, the following:


 


3.2.3.1.            If either party shall apply for or consent to
the appointment of a receiver, trustee or liquidator in bankruptcy, make a
general assignment for the benefit of creditors, file a petition or answer
seeking reorganization or arrangement with creditors, or take advantage of any
bankruptcy, insolvency, reorganization, moratorium or


 


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other
law for the benefit of creditors, or if any order, judgment, or decree shall be
entered by any court of competent jurisdiction on the application of a creditor
or otherwise adjudicating either party, bankrupt or approving a petition
seeking reorganization of either party or appointment of a receiver, trustee or
liquidator of either party of all or a substantial part of its assets, and such
order, judgment or decree shall continue stayed and in effect for sixty (60)
calendar days after its entry, termination shall be effective automatically and
immediately upon the occurrence of the foregoing.


 


3.3.                              Jeopardy.  In the event the performance by either party hereto of any term,
covenant, condition or provision of this Agreement should be determined by a
state or federal court or governmental agency to be in violation of any
statute, ordinance, or be otherwise deemed illegal (“Jeopardy Event”), then the
parties shall use their best efforts to meet forthwith and attempt to negotiate
an amendment to this Agreement to remove or negate the effect of the Jeopardy
Event.  In the event the parties are
unable to negotiate such an amendment within thirty (30) days following written
notice by either party of the Jeopardy Event, then either party may terminate
this Agreement immediately upon written notice.


 


3.4.                              Automatic Termination.  This Agreement shall automatically terminate upon the dissolution of
Group.


 


4.                                      RIGHTS OF MANAGER UPON
TERMINATION.


 


4.1.                              In the event of the termination of this
Agreement for any reason, including without limitation the breach of this
Agreement by either party, Manager shall be entitled to recover (out of the
Accounts (as defined in Section 1.1.2.2 hereof) or otherwise) from Group
all fees, and any and all advances and other charges owed to Manager that had accrued
but were unpaid as of the date of termination.


 


4.2.                              In the event of termination of this Agreement
for any reason, Manager shall remain entitled to its Management Fee with
respect to all Gross Revenues (as defined in Exhibit “B” hereto) that have accrued
on or before the effective date of termination, which shall be payable, without
limitation, out of Net Revenues attributable thereto whether received before,
on or after the effective date of termination.


 


5.                                        REPRESENTATIONS AND
WARRANTIES OF GROUP.  The following representations and warranties
of Group are made to Manager for the purpose of inducing Manager to enter into
this Agreement.  Group represents and
warrants as follows:


 


5.1.                              Group is a Group duly organized, validly
existing and in good standing under the laws of the State of California and has
all necessary powers to own its properties and to operate pursuant to its Group
Agreement.


 


5.2.                              Group’s partners have all requisite power to
execute, deliver and perform this Agreement. 
Neither the execution and delivery of this Agreement, nor the


 


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consummation
and performance of the transaction contemplated in this Agreement, shall
constitute a default or an event that would constitute a default under, or
violation or breach of, Group’s Group Agreement or any license, lease,
franchise, mortgage, instrument, or other agreement to which Group may be
bound.


 


5.3.                              Group has furnished Manager full and complete
copies of all contracts and agreements affecting Group including, but not
limited to, all contracts to which Group is a party.


 


5.4.                              Group and any and all physicians providing
services to Health Plan have each complied with, and are not in violation of,
applicable federal, state or local statutes, laws and regulations including,
but not limited to, statutes, laws and regulations regarding the Group of
medicine and surgery in California, participation in the Medicaid and Medicare
programs or the operation of Group and all applicable standards of Group
relating to the provision of professional services hereunder.


 


5.5.                              Group and any and all Participating Providers
providing services for the Group have each obtained and currently maintain all
necessary licenses, permits, contracts, and approvals required by federal,
state or local statutes and regulations for the proper conduct of the business
of the Group as it is now being conducted and have been approved by the Board
of Directors or its properly designated committee, as documented by written
committee minutes.


 


5.6.                              There is no action, suit, proceeding,
investigation or litigation outstanding, pending or, to the best of Group’s
knowledge, threatened, affecting Group other than routine patient collection
matters and professional liability cases adequately covered by insurance.


 


5.7.                              Group represents and warrants that each Group
Participating Provider is as of the date hereof, and shall at all times during
the term hereof be and remain:


 


5.7.1.                     duly licensed to Group medicine within the
State of California and in possession of a federal DEA number, all without
limitation, restriction or condition whatsoever;


 


5.7.2.                     entitled to receive Medicare and Medicaid
reimbursement without limitation, restriction or condition whatsoever;


 


5.7.3.                     in compliance with the insurance requirements
set forth in Section 2.6 hereof.


 


5.8.                              Group represents and warrants that it and
each Group Participating Provider shall (i) comply with all applicable
governmental laws, regulations, ordinances, and directives and (ii) perform his
or her work and functions at all times in strict accordance with currently
approved methods and Groups in his or her field.


 


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6.                                      REPRESENTATIONS AND
WARRANTIES OF MANAGER.  The following representations and warranties
of Manager are made to Group for the purpose of inducing Group to enter into
this Agreement.  Manager represents and
warrants as follows:


 


6.1.                              Manager is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and has all necessary corporate powers to own its properties and to operate
pursuant to its corporate purposes.


 


6.2.                              Manager has all requisite power to execute,
deliver and perform this Agreement. 
Neither the execution and delivery of this Agreement, nor the
consummation and performance of the transaction contemplated in this Agreement,
shall constitute a default, or an event that would constitute a default under,
or violation or breach of, Manager’s Articles of Incorporation, Bylaws or any
license, lease, franchise, mortgage, instrument, or other agreement to which
Manager may be bound.


 


6.3.                              There is no action, suit, proceeding,
investigation or litigation outstanding, pending or, to the best of Manager’s
knowledge, threatened, affecting Manager.


 


7.                                      MANAGER’S COMPENSATION.


 


7.1.                              As compensation for its services hereunder,
Manager shall be reimbursed a management fee (the “Management Fee”) in the
amount set forth on Exhibit B attached hereto and incorporated herein by
reference.


 


7.2.                              After
deduction of management fees to Manager and which are retained by Manager as
Management Fee compensation, all remaining Gross Revenues shall be remitted to
Group.  From such sums, Manager shall
pay, on Group’s behalf, the Cost of Medical Services (as defined in Exhibit B
attached hereto) such other payments or disbursement which Manager may be
authorized or required to make pursuant to this Agreement and such payments or
disbursements which Group shall direct Manager to make.  Should the funds in Group’s accounts not be
sufficient at any time during the term of this Agreement to make such
disbursements and to meet the Group’s financial obligations, Manager shall have
the right (but not the obligation) to loan to Group funds in an amount
sufficient to allow Group to meet its financial obligations.  Such loan shall bear interest at a rate that
is at or above fair market value and shall have such other terms as the parties
may agree from time to time.  Manager
shall not lend any funds to Group for such purposes without the prior approval
of Group’s Board of Directors or the officer(s) of Group delegated such power
of approval by Group’s Board of Directors.


 


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8.                                      RECORDS.


 


8.1.                              All medical records and documents, including
reports, x-rays, and other similar types of reports for patients of Group
providers shall be the property of Group’s providers.  Group agrees to require Group providers to allow Manager and its
duly authorized representatives to inspect, audit and duplicate any data or
records necessary for Manager to perform its duties pursuant to this
Agreement.  Group and Manager shall
comply with all applicable federal, state, and local laws and regulations pertaining
to the confidentiality of said medical records.


 


8.2.                              All business records, information, software
and systems of the Manager relating to the provision of its services under this
Agreement shall remain the property of the Manager and may be removed by the
Manager upon any termination of this Agreement.


 


9.                                       INDEMNIFICATION.  Each party shall indemnify, defend and hold harmless the other, its
officers, directors, agents, contractors, representatives and employees, and
each of its affiliates from and against any and all liability, loss, damages,
claims, causes of action, and expenses associated therewith (including, without
limitation, attorneys’ fees) caused or asserted to have been caused, directly
or indirectly, by or as a result of any acts, errors or omissions hereunder of
the other, its contractors, shareholders, employees or agents during the term
hereof.  The provisions of this
section shall survive the expiration or earlier termination of this
Agreement.


 


10.                               PROPRIETARY INFORMATION.


 


10.1.                        At all times during the term hereof and
following the expiration or earlier termination of this Agreement, all trade
secrets and proprietary confidential information of Manager, including without
limitation, all forms of contracts and other business documents or information
of Manager, whether currently or in the future developed or maintained by
Manager and including any and all deletions, additions, modifications and
amendments thereto and further including the amount of compensation to be paid
to Manager for its services hereunder (collectively, “Manager’s Proprietary
Materials”), shall be the exclusive, sole and absolute property of
Manager.  Both parties acknowledge and
agree that Manager has developed Manager’s Proprietary Materials at significant
expense, and that said Proprietary Materials are not available for review or
use by members of the public.  All of
Manager’s Proprietary Materials are and shall at all times remain confidential
and proprietary and constitute valuable trade secrets of Manager.  Except in the ordinary course of performing
its obligations under this Agreement and except upon Manager’s prior written
consent, Group shall not disclose to anyone, use, copy, or take any such trade
secrets or confidential and proprietary information for Group’s benefit or gain
either during the term of this Agreement or at any time after the termination
hereof.  Upon any expiration or earlier
termination of this Agreement for any reason, Group shall not, without the
prior written consent of Manager, take


 


13

















 


or
use any of Manager’s Proprietary Materials, and shall return to Manager all of
Manager’s Proprietary Materials in Group’s possession or control.


 


10.2.                        At all times during the term hereof and
following the termination of this Agreement, Group shall not, directly or
indirectly, interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Manager and any health care provider or
supplier (including, without limitation, any physician or osteopath), or any
employee, independent contractor, consultant or agent of Manager.  Group further agrees not to hire, engage or
contract with, either as an independent contractor, employee or in any other
capacity, any personnel of Manager, during the first twelve (12) months following
the effective expiration or termination date hereof without Manager’s prior
written consent.


 


10.3.                        The provisions of this Section 10 shall
survive the termination of this Agreement.


 


11.                             INDEPENDENT
CONTRACTORS.  The parties hereto acknowledge and agree that
the relationship created between Manager and Group is strictly that of
independent contractors.  Nothing
contained herein shall be construed as creating a Group or joint venture
relationship between the parties.  Each
party hereto shall be responsible for all compensation, salaries, taxes,
withholdings, contributions, benefits, and workers’ compensation insurance with
respect to all personnel employed or contracted by said party and shall
indemnify, defend and hold harmless the other party and its officers,
directors, agents, contractors, representatives and employees (and, in the case
of Group’s indemnification of Manager, Manager’s affiliates and subcontractors)
from and against any and all liability, loss, damages, claims, causes of
action, and expenses associated therewith (including, without limitation,
attorneys’ fees) caused or asserted to have been caused, directly or
indirectly, by or as a result of same. 
The provisions of this Section shall survive the expiration or
earlier termination of this Agreement.


 


12.                               MISCELLANEOUS.


 


12.1.                        No Third Party
Beneficiaries.  The parties intend that the benefits of this
Agreement shall inure only to Manager and Group and not to any third person,
except as expressly so stated herein. 
Notwithstanding anything contained herein, or any conduct or course of
conduct by any party hereto, before or after signing this Agreement, this
Agreement shall not be construed as creating any right, claim or cause of
action against either Manager or Group by any other person or entity.


 


12.2.                        Entire Agreement.  This Agreement, together with all exhibits and schedules hereto, and
all documents referred to herein, constitutes the entire agreement between the
parties with respect to the subject matter hereof, supersedes all other and
prior agreements on the same subject, whether written or oral, and contains all
of the covenants and agreements between the parties with respect to the subject
matter hereof.  Each party to this


 


14

















 


Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by the other party(ies), or by anyone
acting on behalf of any party, that are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding.


 


12.3.                        Successors and Assigns.  All of Manager’s operational rights and duties under this Agreement may
be assigned or delegated by Manager, including but not limited to, an assignment
to Imperial Bank, a California banking corporation.  Notwithstanding any other provision of this Agreement, neither
this Agreement nor the rights and duties of this Agreement may be assigned or
delegated by Group.  This Agreement
binds the successors, heirs, and authorized assignees of the parties.


 


12.4.                        Counterparts.  This Agreement, and any amendments thereto, may be executed in
counterparts, each of which shall constitute an original document, but which
together shall constitute one and the same instrument.


 


12.5.                        Headings.  The section headings contained in this Agreement are inserted for
convenience only and shall not effect in any way the meaning or interpretation
of this Agreement.


 


12.6.                        Notices.  Any notices required or permitted to be given hereunder by either party
to the other shall be in writing and shall be deemed delivered upon personal
delivery or delivery by electronic facsimile; twenty-four (24) hours following
deposit with a courier for overnight delivery; or seventy-two (72) hours following
deposit in the U.S.  Mail, registered or
certified mail, postage prepaid, return-receipt requested, addressed to the
parties at the following addresses or to such other addresses as the parties
may specify in writing:


 


If to Group:                                   Nuestra Familia Medical Group
Chairman
Board of Directors


 


 


If to Manager:                    Prospect Medical Systems, Inc.

1920 East 17th Street

Suite 200

Santa Ana, CA 92705-8626

Attention: CEO


 


12.7.                              Governing Law. 
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.


 


15

















 


12.8.                        Amendment.  This Agreement may be amended at any time by agreement of the parties,
provided that any amendment shall be in writing and executed by both parties.


 


12.9.                        Severability.  If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions will
nevertheless continue in full force and effect, unless such invalidity or
unenforceability would defeat an essential business purpose of this Agreement.


 


12.10.                  Exhibits and Schedules.  All exhibits and schedules attached to this Agreement are incorporated
herein by this reference and all references herein to “Agreement” shall mean
this Agreement together with all such exhibits and schedules.


 


12.11.                  Time of Essence.  Time is expressly made of the essence of this Agreement and each and
every provision hereof of which tune of performance is a factor.


 


12.12.                  Dispute Resolution.


 


12.12.1.         Subject to the terms of Section 12.12.2,
in the event the parties hereto are unable to resolve any and all disputes in
connection with this Agreement, either party may commence arbitration by
sending a written demand for arbitration to the other party, setting forth the
nature of the matter to be resolved by arbitration.  Except as may be expressly provided to the contrary herein, the
arbitration procedure described in this Section shall be the sole means of
resolving any disputes hereunder.


 


12.12.2.         Notwithstanding the foregoing, it is
expressly understood by the parties that the arbitration procedure described in
this Section shall not be applicable to any disputes between the parties
as to matters over which Manager has exclusive decision-making authority pursuant
to the terms hereof, including the Manager’s exclusive decision-making
authority with respect to the development of guidelines for the selection,
hiring and firing of any of Manager’s employees.


 


12.12.3.         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
retired judge sitting on the Los Angeles Judicial Arbitration Mediation
Services (JAMS) panel.


 


12.12.4.         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.


 


12.12.5.         The substantive law of the State of
California shall be applied by the arbitrator. 
The parties shall have the rights of discovery as provided for in Part 4
of the


 


16

















 


California
Code of Civil Procedure and as provided for in Section 1283.05 of said
Code.  The California Code of Evidence
shall apply to testimony and documents submitted to the arbitrator.


 


12.12.6.         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.


 


12.12.7.         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.


 


12.12.8.         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.


 


12.12.9.         Notwithstanding the foregoing, any and all
arbitration proceedings are conditional upon such proceedings being covered
under the parties’ respective risk insurance policies.


 


12.13.                  Attorneys’ Fees.  Should either party institute any action or procedure to enforce this
Agreement or any provision hereof, or for damages by reason of any alleged
breach of this Agreement or of any provision hereof, or for a declaration of
rights hereunder (including, without limitation, arbitration), the prevailing
party in any such action or proceeding shall be entitled to receive from the
other party all costs and expenses, including without limitation reasonable
attorneys’ fees, incurred by the prevailing party in connection with such
action or proceeding.


 


12.14.                  Further Assurances.  The parties shall take such actions and execute and deliver such
further documentation as may reasonably be required in order to give effect to
the transactions contemplated by this Management Services Agreement and the
intentions of the parties hereto.


 


12.15.                  Rights Cumulative.  The various rights and remedies herein granted to Manager or Group
shall be cumulative and in addition to any other rights Manager or Group,
respectively, may be entitled to under law. 
The exercise of one or more rights or remedies


 


17

















 


shall
not impair the right of Manager or Group to exercise any other right or remedy,
at law or equity.


 


12.16.                  Federal Social Security
Requirements.  Pursuant to Section 1395x (V)(1)(I) of
Title 42 of the United States Code, with respect to any services furnished
under the terms of this Agreement if the value or cost of which is Ten Thousand
Dollars ($10,000) or more over a twelve (12) month period, until the expiration
of four (4) years after the termination of this Agreement, Manager shall make
available upon written request to the Secretary of the United States Department
of Health and Human Services, or upon request by the Comptroller General of the
United States General Accounting Office, or any of their duly authorized
representatives, a copy of this Agreement and such books, documents and records
as are necessary to certify the nature and extent of the costs of the services
provided by Manager under this Agreement.


 


Manager further agrees that in the event Manager carries out any of its
duties under this Agreement through a subcontract, with a value or cost of Ten
Thousand Dollars ($10,000) or more over a twelve (12) month period, such
subcontract shall contain a clause to the effect that until the expiration of
four (4) years after the furnishing of such services pursuant to such
subcontract, the subcontractor shall make available, upon written request to
the Secretary of the United States Department of Health and Human Services, or
upon request to the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, the subcontract and
such books, documents and records of such organization as are necessary to
verify the nature and extent of such costs.


 


18

















 


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


 


 


	
  For:
  “MANAGER”

  	
   

  	
   For: “GROUP”

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  PROSPECT
  MEDICAL SYSTEMS, INC.

  	
  NUESTRA
  FAMILIA MEDICAL GROUP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ [Illegible]

  	
   

  	
  By:

  	
  /s/ [Illegible]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  CEO

  	
   

  	
  Its:

  	
  PRESIDENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
  3-1-2000

  	
   

  
								



 


19

















 


EXHIBIT “A”


 


POWER OF
AGENCY


 


This Power of Agency is made and entered into in
connection with that certain Management Services Agreement (the “Agreement”)
dated as of the 1st day of August, 1999, between Prospect Medical Systems,
Inc., a Delaware Corporation (“Manager”), and Nuestra Familia Medical Group, a
California Professional Corporation. 
(“Group”).


 


1.                                        Definitions.  Capitalized terms used herein
and not otherwise defined herein shall have the meaning assigned to them in the
Agreement.


 


2.                                        Power of Manager. 
Group hereby appoints the Manager or its designee, as Group’s agent
(“Agent”) to act for Group and in Group’s name, place and stead for the
purposes of carrying out those duties prescribed in this Management Services
Agreement as well as other operational duties and responsibilities consistent
with this Agreement.  Additionally the
Manager shall be delegated the authority for the following: (a) administering
executed Contracts, as approved; (b) negotiating and executing all business
agreements and leases on Group’s behalf in accordance with the Agreement; (c)
endorsing all checks made payable to Group for services provided to Members;
(d) taking all steps required or desirable to submit, process and collect all
claims for payment to Health Plan; and (e) receiving and depositing capitation
and other payments received by Group.


 


3.                                        Administration. 
Agent shall maintain in his/her files a copy of the Health Plan
contract.  Notwithstanding anything
herein to the contrary, Group shall look solely to Health Plan for payment for
medical services and supplies and neither Manager nor any officer, employee,
agent or affiliate of Manager shall be liable for such payment.


 


4.                                        Term.  The term of this Power of
Agency shall coexist and be coterminous with the term of the Agreement.


 


5.                                        Full Authority. 
Agent is hereby granted full authority to act in any manner proper or
necessary to exercise the foregoing powers.


 


20

















 


EXHIBIT “B”


 


MANAGEMENT
FEE


 


 


The
management fee payable to Manager under this contract shall be 12% of Gross
Collections of all HMO revenue received.


 


22