Exhibit
10.7


 


AMENDMENT
TO MANAGEMENT SERVICES AGREEMENT


 


THIS AMENDMENT TO MANAGEMENT SERVICES AGREEMENT (“Agreement”) is made
and entered into as of October 1, 1998, by and between PROSPECT MEDICAL
SYSTEMS, INC., a Delaware corporation (“Manager”), and PROSPECT MEDICAL GROUP,
INC., a California professional corporation (“GROUP”).


 


RECITALS


 


A.                                   GROUP and Manager entered into that certain
Management Services Agreement dated as of June 4, 1996 (“Management
Agreement”).


 


B.                                     The parties desire to amend and restate
Exhibit D to the Management Agreement as follows:


 


EXHIBIT D -
MANAGEMENT FEE


 


A.                                   Definitions


 


Cost of Medical Services means with respect to the GROUP, the
aggregate compensation of GROUP’s employed physicians and physician extenders
(e.g. physician assistants and nurse practitioners), charges incurred by the
GROUP for independent contractor physicians, the cost of services ordered by
GROUP through its physicians for managed care patients, 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).


 


Manager’s
Costs means all operating and non-operating third party
vendor and consultant expenses and costs, as well as expenses and costs
directly related to Manager’s employees working at GROUP’s facility, incurred
by Manager on behalf of GROUP in conjunction with the operation of the
Practice.  These expenses and costs
include, but are not limited to, direct labor costs (for all employees of
Manager or its affiliates working at GROUP’s facility, and for any independent
contractors or consultants to Manager or other third parties whose services are
specifically retained primarily for the benefit of GROUP), indirect labor costs
for services primarily for the benefit of GROUP, supplies, all amounts paid by Manager
or GROUP to satisfy any obligations of GROUP to non-professional employees and
third parties (other than for the Cost of Medical Services), obligations under
any lease or purchase agreement or arrangement for which Manager has direct or
indirect financial liability, and direct and indirect corporate overhead of
GROUP.


 

















 


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 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 (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 sum of
Manager’s Costs and 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 Manager’s Costs and 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 Manager’s Costs and 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 facilities and furniture, fixtures and equipment
at the Premises and all non-physician employees of Manager who perform services
at or for the Practice and all management services provided hereunder, Manager
shall (i) retain that portion of the Gross Revenues which is equal to Manager’s
Costs plus (ii) fifteen percent (15%) of Gross Revenues the (“Management Fee”)
plus (iii) a fee for marketing and public relations services in the amount of four
thousand dollars ($4,000) pet month. 
Notwithstanding the foregoing, if, after the payment of Manager’s Costs
as set forth in item (i) above, 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 (ii) 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.


 


2

















 


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


 


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


 


	
  MANAGER

  	
   

  	
  GROUP

  
	
   

  	
   

  	
   

  
	
  PROSPECT
  MEDICAL SYSTEMS, INC.

  	
   

  	
  PROSPECT
  MEDICAL GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  R.
  Stewart Kahn,

  	
   

  	
   

  	
  Jacob
  Y. Terner, M.D.

  
	
   

  	
  Executive
  Vice President

  	
   

  	
   

  	
  Vice
  President

  
							



 


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