Document:

Exhibit 10.3

 

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 NUESTRA FAMILIA MEDICAL
GROUP, INC., a California professional corporation (“Group”).

 

RECITALS

 

A.            Group
and Manager entered into that certain Management Services Agreement, dated as
of August 1, 1999 (the “Management Agreement”).

 

B.            The parties desire to amend and
restate Section 3.1 (Term) of the Management Agreement, to amend and
restate Exhibit “B” to the Management Agreement and to add a new Section 1.1.9.
(Marketing and Public Relations Services) to the Management Agreement, each as set
forth in this Amendment.

 

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

 

AGREEMENT

 

1.             Section 3.1
of the Management Agreement is hereby amended to read, in its entirety, as
follows:

 

                “3.1         Term.  The term of this Agreement (the “Term”) shall
commence on the date hereof and shall expire on July 31, 2019, the
twentieth (20th)
anniversary hereof, unless earlier terminated as provided below.  The Term shall be automatically extended for
two (2) additional terms of ten (10) years each, unless either party
delivers to the other party, not less than twelve (12) months, nor earlier than
fifteen (15) months, prior to the expiration of the preceding term, written
notice of such party’s intention not to extend the Term.”

 

2.             Exhibit “B”
(Management Fee) to the Management Agreement is hereby amended to read, in its
entirety, as follows:

 

“EXHIBIT B – 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 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 

 

2

 

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

 

3.             A
new paragraph 1.1.9. is hereby added to the Management Agreement which shall
read, in its entirety, as follows:

 

“1.1.9.                          Marketing
and Public Relations Services.  Manager
will assist Group in Group’s marketing, public relations and advertising of the
health care services provided by Group.  Manager
shall provide and be principally responsible for marketing and advertising
services for Group and shall prepare signs, brochures, letterhead,
advertisements, and other marketing materials for Group.  Manager may, at its discretion, contract with
third parties to assist it in the provision of Group marketing and public
relations services, should Manager deem such action advisable.  Manager shall produce and distribute such
written descriptive materials concerning Group’s professional services, subject
to the prior approval of Group, as may be necessary or appropriate to the
conduct of the Practice.  In providing
such marketing services, Manager is acting solely in its capacity as administrator
for the Group.  At no time shall Manager hold
itself out as providing, or actually provide, medical services on behalf of Group.  All such marketing services shall be
conducted in accordance with the laws, rules, regulations and guidelines of all
applicable governmental and quasi-governmental agencies, including but not
limited to the Medical Board of California. 
Manager shall be the owner and holder of all right, title and interest
in and to any such marketing and advertising materials.”

 

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”

  	
   

  
	
   

  	
  NUESTRA
  FAMILIA MEDICAL GROUP, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
     /s/
  R. Stewart Kahn

  
	
   

  	
  Name: R.
  Stewart Kahn

  	
   

  
	
   

  	
  Title: Vice
  President

  	
   

  
				

 

3Exhibit 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 

 

 

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 

 

2

 

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

  	
   

  
				

 

3

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