EXHIBIT 10.17
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
CASTLE DENTAL CENTERS OF FLORIDA, INC.,
A FLORIDA CORPORATION
AND
Castle 1st Dental Care, P.A.
A FLORIDA PROFESSIONAL ASSOCIATION
EFFECTIVE ______________ __, 1999
TABLE OF CONTENTS
Page No.
ARTICLE I. DEFINITIONS...........................................................................................1
Section 1.1 Act....................................................................................1
Section 1.2 Adjusted Gross Revenue.................................................................1
Section 1.3 Adjustments............................................................................1
Section 1.4 Ancillary Revenue......................................................................2
Section 1.5 Base Management Fee....................................................................2
Section 1.6 Budget.................................................................................2
Section 1.7 Business Manager.......................................................................2
Section 1.8 Business Manager Consent...............................................................2
Section 1.9 Business Manager Expense...............................................................2
Section 1.10 Clinical...............................................................................2
Section 1.11 Confidential Information...............................................................2
Section 1.12 Center.................................................................................3
Section 1.13 Dental Services........................................................................3
Section 1.14 Dentist................................................................................3
Section 1.15 GAAP...................................................................................3
Section 1.16 Management Fee.........................................................................4
Section 1.17 Management Services....................................................................4
Section 1.18 Management Services Agreement..........................................................4
Section 1.19 Office Expense.........................................................................4
Section 1.20 PA.....................................................................................5
Section 1.21 PA Account.............................................................................5
Section 1.22 PA Consent.............................................................................5
Section 1.23 PA Expense.............................................................................5
Section 1.24 Performance Fee........................................................................6
Section 1.25 Policy Board...........................................................................6
Section 1.26 Practice Territory.....................................................................6
Section 1.27 Professional Services Revenues.........................................................6
Section 1.28 Representatives........................................................................6
Section 1.29 State..................................................................................6
Section 1.30 Term...................................................................................6
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER........................................................6
Section 2.1 Appointment............................................................................6
i
Section 2.2 Authority..............................................................................6
Section 2.3 Patient Referrals and Payments.........................................................7
Section 2.4 Internal Management of PA..............................................................7
Section 2.5 Practice of Dentistry..................................................................7
ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD................................................................8
Section 3.1 Formation and Operation of the Policy Board............................................8
Section 3.2 Duties and Responsibilities of the Policy Board........................................8
(a) Capital Improvements and Expansion.....................................................8
(b) Marketing and Advertising..............................................................8
(c) Patient Fees; Collection Policies......................................................8
(d) Provider and Payor Relationships.......................................................8
(e) Strategic Planning.....................................................................9
(f) Capital Expenditures...................................................................9
Section 3.3 Dental Treatment Decisions.............................................................9
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER..................................................10
Section 4.1 Centers and Equipment.................................................................10
Section 4.2 Dental Supplies.......................................................................11
Section 4.3 Support Services......................................................................12
Section 4.4 Quality Assurance, Risk Management, and Utilization Review............................12
Section 4.5 Licenses and Permits..................................................................12
Section 4.6 Personnel.............................................................................12
Section 4.7 Contract .............................................................................12
Section 4.8 Billing and Collection................................................................12
Section 4.9 PA Account............................................................................14
Section 4.10 Fiscal Matters........................................................................14
Section 4.11 Reports and Records...................................................................16
Section 4.12 Recruitment of PA Dentists............................................................17
Section 4.13 Business Manager's Insurance..........................................................17
Section 4.14 No Warranty...........................................................................17
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PA.................................................................17
Section 5.1 Organization and Operation............................................................17
Section 5.2 PA Personnel and Shareholders.........................................................18
Section 5.3 Professional Standards................................................................18
Section 5.4 Dental Services.......................................................................19
Section 5.5 Peer Review/Quality Assurance.........................................................19
ii
Section 5.6 PA's Insurance........................................................................19
Section 5.7 Confidential and Proprietary Information..............................................20
Section 5.8 Noncompetition........................................................................20
Section 5.9 Name, Trademark.......................................................................22
Section 5.10 Peer Review...........................................................................22
Section 5.11 Indemnification.......................................................................22
ARTICLE VI. FINANCIAL ARRANGEMENT...............................................................................23
Section 6.1 Definitions...........................................................................23
Section 6.2 Management Fee........................................................................23
Section 6.3 Adjustments...........................................................................23
Section 6.4 Reasonable Value......................................................................23
Section 6.5 Payment of Management Fee.............................................................24
Section 6.6 Accounts Receivable...................................................................24
Section 6.7 Disputes Regarding Fees...............................................................24
ARTICLE VII. TERM AND TERMINATION...............................................................................24
Section 7.1 Initial and Renewal Term..............................................................25
Section 7.2 Termination...........................................................................25
Section 7.3 Effects of Termination................................................................26
ARTICLE VIII. MISCELLANEOUS.....................................................................................27
Section 8.1 Administrative Services Only..........................................................27
Section 8.2 Status of Contractor; Agency..........................................................27
Section 8.3 Notices...............................................................................27
Section 8.4 Governing Law.........................................................................28
Section 8.5 Assignment............................................................................28
Section 8.6 Arbitration...........................................................................29
Section 8.7 Waiver of Breach......................................................................30
Section 8.8 Enforcement...........................................................................31
Section 8.9 Gender and Number.....................................................................31
Section 8.10 Additional Assurances.................................................................31
Section 8.11 Consents, Approvals, and Exercise of Discretion.......................................31
Section 8.12 Force Majeure.........................................................................31
Section 8.13 Severability..........................................................................31
Section 8.14 Divisions and Headings................................................................32
Section 8.15 Amendments and Management Services Agreement Execution................................32
Section 8.16 Entire Management Services Agreement..................................................32
iii
iv
AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT is made and
entered into effective as of January 1, 2000, by and between CASTLE DENTAL
CENTERS OF FLORIDA, INC., a Florida corporation ("Business Manager"), and CASTLE
1ST DENTAL CARE, P.A., a Florida professional association ("PA").
RECITALS
This Management Services Agreement is made with reference to the
following facts:
WHEREAS, on May 19, 1996, Business Manager and PA entered into a
Management Services Agreement ("Original Agreement"); and
WHEREAS, Business Manager and PA desire to amend and restate the
Original Agreement (such Original Agreement, as amended hereby, the "Management
Services Agreement");
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
ARTICLE I. DEFINITIONS
For the purposes of this Management Services Agreement, the following
terms shall have the following meanings ascribed thereto, unless otherwise
clearly required by the context in which such term is used.
Section 1.1 Act. The term "Act" shall mean Chapter 466, Florida
statutes, as amended, and administrative regulations promulgated thereunder.
Section 1.2 Adjusted Gross Revenue. The term "Adjusted Gross
Revenue" shall mean the sum of Professional Services Revenue and Ancillary
Revenue.
Section 1.3 Adjustments. The term "Adjustments" shall mean any
adjustments on an accrual basis for uncollectible accounts, third party payor
contractual adjustments, discounts, workers' compensation adjustments,
professional courtesies, and other reductions in collectible revenue that result
from activities that do not result in collectible charges.
1
Section 1.4 Ancillary Revenue. The term "Ancillary Revenue" shall
mean all other revenue actually recorded each month (net of Adjustments) that is
not Professional Services Revenues consisting only of prepaid amounts for
services previously billed and collected, and shall include (a) any amounts
received by PA as liquidated damages under Section 4.2 or Section 4.3 of any
Dentist's employment agreement, and (b) the proceeds of key person life and
disability insurance as provided for in Section 4.14 below.
Section 1.5 Base Management Fee. The term "Base Management Fee"
shall mean the amount set forth in Section 6.1.
Section 1.6 Budget. The term "Budget" shall mean an operating budget
and capital expenditure budget for each fiscal year as prepared by Business
Manager and adopted by PA.
Section 1.7 Business Manager. The term "Business Manager" shall mean
Castle Dental Centers of Florida, Inc., a Florida corporation, or any entity
that succeeds to the interests of Castle Dental Centers of Florida, Inc., a
Florida corporation, and to whom the obligations of Business Manager are
assigned and transferred.
Section 1.8 Business Manager Consent. The term "Business Manager
Consent" shall mean the consent granted by Business Manager's representatives to
the Policy Board created pursuant to Article III herein.
Section 1.9 Business Manager Expense. The term "Business Manager
Expense" shall mean an expense or cost incurred by the Business Manager and for
which the Business Manager, and not PA, is financially liable other than
expenses incurred by Business Manager that directly benefit PA which may be
allocated to Office Expense consistent with the Budget.
Section 1.10 Clinical. The term "Clinical" means having a significant
relationship, whether real or potential, direct or indirect, to the actual
rendering or outcome of dental care, the practice of dentistry or the quality of
dental care being rendered to one or more patients.
Section 1.11 Confidential Information. The term "Confidential
Information" shall mean any information of Business Manager or PA, as
appropriate (whether written or oral), including all notes, studies, patient
lists, information, forms, business or management methods, marketing data, fee
schedules, or trade secrets of the Business Manager or of PA, as applicable,
whether or not such Confidential Information is disclosed or otherwise made
available to one party by the other party pursuant to this Management Services
Agreement. Confidential Information shall also include the terms and provisions
of this Management Services Agreement and any transaction or document
2
executed by the parties pursuant to this Management Services Agreement.
Confidential Information does not include any information that (i) is or becomes
generally available to and known by the public (other than as a result of an
unpermitted disclosure directly or indirectly by the receiving party or its
affiliates, advisors, or Representatives); (ii) is or becomes available to the
receiving party on a nonconfidential basis from a source other than the
furnishing party or its affiliates, advisors, or Representatives, provided that
such source is not and was not bound by a confidentiality agreement with or
other obligation of secrecy to the furnishing party of which the receiving party
has knowledge at the time of such disclosure; or (iii) has already been or is
hereafter independently acquired or developed by the receiving party without
violating any confidentiality agreement with or other obligation of secrecy to
the furnishing party.
Section 1.12 Center. The term "Center" (collectively referred to as
"Centers") shall mean any office space, clinic, facility, including satellite
facilities, that Business Manager shall own or lease or otherwise procure for
the use of PA, as allowed by law, in the provision of Dental Services pursuant
to this Management Services Agreement.
Section 1.13 Dental Services. The term "Dental Services" shall mean
dental care and services, including but not limited to the practice of general
dentistry, orthodontics and all related dental care services provided by PA
through PA's Dentists and other dental care providers that are retained by or
professionally affiliated with PA.
Section 1.14 Dentist. The term "Dentist" shall mean each individually
licensed professional who is employed or otherwise retained by or associated
with PA, each of whom shall meet at all times the qualifications described in
Section 5.2 and Section 5.3.
Section 1.15 GAAP. The term "GAAP" shall mean generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of the determination. For purposes of this Management Services Agreement, GAAP
shall be applied on an accrual basis in a manner consistent with the historic
practices of the person to which the term applies.
Section 1.16 Management Fee. The term "Management Fee" shall mean
Business Manager's compensation established as described in Article VI hereof.
3
Section 1.17 Management Services. The term "Management Services"
shall mean the business, administrative, and management services to be provided
for PA, including without limitation the provision of equipment, supplies,
support services, nondental personnel, office space, management, administration,
financial recordkeeping and reporting, and other business office services;
provided, however, that PA shall maintain complete care, custody and control of
the equipment and material.
Section 1.18 Management Services Agreement. The term "Management
Services Agreement" shall mean this Management Services Agreement by and between
PA and Business Manager and any amendments hereto as may be adopted as provided
in this Management Services Agreement.
Section 1.19 Office Expense. The term "Office Expense" shall mean all
operating and nonoperating expenses incurred by the Business Manager or PA in
the provision of services to or by PA. Office Expense shall not include any
State or federal income tax, or any other expense that is a PA Expense or a
Business Manager Expense. Without limitation, Office Expense shall include:
(a) the salaries and benefits of all employees of Business Manager
at the Centers and the salaries and benefits of the nondental employees of PA,
but not the salaries, benefits or other direct costs of the Dentists;
(b) the direct cost of any employee or consultant that provides
services at or in connection with the Centers for improved clinic performance,
such as management, billing and collections, business office consultation,
accounting and legal services, but only when such services are consistent with
the Budget or otherwise with the consent of the Policy Board;
(c) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or PA directly related to the recruitment of additional dental
employees of PA;
(d) professional liability insurance expenses for Dentists and
comprehensive, general liability and workers' compensation insurance covering
the Centers and employees of PA and Business Manager at each Center;
(e) the expense of using, leasing, purchasing or otherwise procuring
each Center and related equipment, including depreciation;
(f) the cost of capital (whether as actual interest on indebtedness
incurred on behalf of PA or as reasonable imputed interest on capital advanced
by Business Manager, which shall be equal
4
to the average cost of borrowing by Business Manager from its primary commercial
lender as reflected on its most recent published financial statements) to
finance or refinance obligations of PA, purchase dental or nondental equipment,
or finance new ventures of PA;
(g) the Base Management Fee;
(h) the reasonable out-of-pocket travel expenses associated with
attending meetings, conferences, or seminars to benefit PA;
(i) the reasonable costs and expenses associated with marketing,
advertising and promotional activities to benefit PA; and
(j) the cost of dental supplies (including but not limited to drugs,
pharmaceuticals, products, substances, items, or dental devices), office
supplies, inventory, and utilities other than those dental supplies or dental
inventory owned by PA on the date of this Management Services Agreement.
Section 1.20 PA. The term "PA" shall mean Castle 1st Dental Care,
P.A., a Florida professional association.
Section 1.21 PA Account. The term "PA Account" shall mean the bank
account of PA established as described in Sections 4.8 and 4.9.
Section 1.22 PA Consent. The term "PA Consent" shall mean the
consent granted by PA's representative to the Policy Board created pursuant to
Article III herein.
Section 1.23 PA Expense. The term "PA Expense" shall mean an expense
incurred by the Business Manager or PA that is consistent with the Budget or
otherwise with the consent of the Policy Board and for which PA, and not the
Business Manager, is financially liable. PA Expense shall include such items as
Dentist salaries, benefits, and other direct costs (including professional dues,
subscriptions, continuing dental education expenses, and travel costs for
continuing dental education or other business travel but excluding business
travel requested by Business Manager, which shall be an Office Expense).
Section 1.24 Performance Fee. The term "Performance Fee" shall mean
the amount payable to the Business Manager, if any, determined under Section
6.2, as a Management Fee based upon the Business Manager achieving certain
pre-determined performance criteria.
5
Section 1.25 Policy Board. The term "Policy Board" shall refer to the
body responsible for developing management and administrative policies for the
overall operation of PA's facilities, excluding any policies or decisions that
relate directly or indirectly to the practice of dentistry; provided, however
that the Policy Board can make recommendations to the PA that relate directly or
indirectly to the practice of dentistry.
Section 1.26 Practice Territory. The term "Practice Territory" shall
mean the geographic area within a radius of ten (10) miles of any current or
future facility from which PA provides Dental Services in Florida representing
the specific geographic boundaries of the dental practice conducted by PA within
its particular urban metropolitan area.
Section 1.27 Professional Services Revenues. The term "Professional
Services Revenues" shall mean the sum of all professional fees actually recorded
each month on an accrual basis under GAAP (net of Adjustments) as a result of
Dental Services and related services rendered by the shareholders and dental
employees of PA.
Section 1.28 Representatives. The term "Representatives" shall mean a
party's officers, directors, employees, or other agents or representatives.
Section 1.29 State. The term "State" shall mean the State of Florida.
Section 1.30 Term. The term "Term" shall mean the initial and any
renewal periods of duration of this Management Services Agreement as described
in Section 7.1.
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
Section 2.1 Appointment. PA hereby appoints Business Manager as its
sole and exclusive agent for the management and administration of the business
functions and business affairs of PA, and Business Manager hereby accepts such
appointment, subject at all times to the provisions of this Management Services
Agreement.
Section 2.2 Authority. Consistent with the provisions of this
Management Services Agreement, Business Manager shall have the responsibility
and commensurate authority to provide Management Services for PA. Subject to the
terms and conditions of this Management Services Agreement, Business Manager is
hereby expressly authorized to provide the Management Services in any reasonable
manner Business Manager deems appropriate to meet the day-to-day requirements of
the business functions of PA. Business Manager is also expressly and exclusively
authorized to negotiate contracts that do not relate to the provision of Dental
Services; provided, however, that
6
Business Manager shall not have authority to execute any contract pertaining to
pricing of dental services, credit, refunds, warranties, advertising and
employees of PA or other personnel of PA providing services to PA and/or other
agreements for the provision of dental services. PA shall give Business Manager
thirty (30) days prior notice of PA's intent to execute any agreement obligating
PA to perform Dental Services or otherwise creating a binding legal obligation
on PA. Unless an expense is expressly designated as a Business Manager Expense
in this Management Services Agreement, all expenses incurred by Business Manager
in providing services hereunder shall be an Office Expense. The parties
acknowledge and agree that PA, through its Dentists, shall be responsible for
and shall have complete authority, responsibility, supervision, and control over
the provision of all Dental Services and other professional health care services
performed for patients, and that all diagnoses, treatments, procedures, and
other professional health care services shall be provided and performed
exclusively by or under the supervision of Dentists as such Dentists, in their
sole discretion, deem appropriate. Business Manager shall have and exercise
absolutely no control or supervision over the provision of Dental Services.
Section 2.3 Patient Referrals and Payments. Business Manager and PA
agree that the benefits to PA hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission, or any other
arrangement for the provision of any item or service offered by Business Manager
to patients of PA in any facility, laboratory or health care operation
controlled, managed, or operated by Business Manager. Further, Business Manager
and PA agree that the payment of monies hereunder in no way represents the
division, sharing, splitting or other allocation of fees for Dental Services
between PA and Business Manager.
Section 2.4 Internal Management of PA. Matters involving the
internal management, control, or finances of PA, including specifically the
allocation of professional income among the shareholders and Dentist employees
of PA, tax planning, office personnel, and investment planning, shall remain the
responsibility of PA and the shareholders of PA.
Section 2.5 Practice of Dentistry. The parties acknowledge that
Business Manager is not authorized or qualified to engage in any activity that
may be construed or deemed to constitute the practice of dentistry nor shall
Business Manager now or in the future be regarded as practicing dentistry within
the meaning of Florida Statutes Section 466.003(3). To the extent any act or
service herein required by Business Manager should be construed by a court of
competent jurisdiction or by the State Board of Dental Examiners to constitute
the practice of dentistry, the requirement to perform that act or service by
Business Manager shall be deemed waived and unenforceable and shall not
constitute a breach or default by Business Manager under this Agreement, and the
parties shall take the actions contemplated by Section 7.2(d) hereof.
7
ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD
Section 3.1 Formation and Operation of the Policy Board. The parties
hereby establish a Policy Board which shall be responsible for developing
management and administrative policies for the overall operation of PA's
facilities within the terms of this Management Services Agreement. The Policy
Board shall consist of four (4) members. Business Manager shall designate, in
its sole discretion, three (3) members of the Policy Board. PA shall designate,
in its sole discretion, one (1) member of the Policy Board. The Policy Board
member selected by PA shall be a Dentist who holds and maintains a valid and
unrestricted license to practice dentistry in the State. A majority of each
party's representative or representatives to the Policy Board shall have the
authority to make decisions within the terms of this Management Services
Agreement on behalf of the respective party. Except as may otherwise be
provided, the act of a majority of the members of the Policy Board shall be the
act of the Policy Board.
Section 3.2 Duties and Responsibilities of the Policy Board. The
Policy Board shall have the following duties, obligations, and authority:
(a) Capital Improvements and Expansion. Any renovation and expansion
plans with respect to PA's facilities shall be reviewed and approved by the
Policy Board and shall be based upon economic feasibility, dentist support,
productivity, technological innovations, competitive alternatives and then
current market conditions. The Policy Board shall make recommendations to PA
regarding capital equipment, but PA shall have final authority concerning
equipment.
(b) Marketing and Advertising. To make recommendations to PA
concerning all marketing and other advertising of the services performed at PA's
facilities.
(c) Patient Fees; Collection Policies. As a part of the Budget
process, in consultation with PA and Business Manager, the Policy Board shall be
advised of the fee schedule determined by the PA representative to the Policy
Board and shall review the related collection policies for all Dental Services
rendered by PA. The Policy Board may make recommendations concerning fee
schedules and collection policies.
(d) Provider and Payor Relationships. To make recommendations
regarding the establishment or maintenance of relationships with institutional
health care providers and third party payors. The Policy Board shall review all
proposed reimbursement arrangements with third party payors. The Policy Board
may make recommendations concerning reimbursement arrangements.
8
(e) Strategic Planning. The Policy Board shall develop long-term
strategic planning objectives, including but not limited to the acquisition of
or merger with any other dental practices in the Practice Territory.
(f) Capital Expenditures. The Policy Board shall determine the
priority of major capital expenditures.
Section 3.3 Dental Treatment Decisions. Despite the above listing of
activities and areas of interest, all decisions relating directly or indirectly
to the practice of dentistry will be made solely by PA's representatives to the
Policy Board, but Business Manager's representatives to the Policy Board may
participate in the discussion process. Notwithstanding any provision to the
contrary contained elsewhere in this Management Services Agreement, PA's
representative to the Policy Board shall review and shall have exclusive
jurisdiction over the resolution of issues relating to:
(a) the use of any dental equipment or material while such equipment
or material is being used for the provision of Dental Services, whether those
services are provided by a Dentist, a dental hygienest or a dental assistant;
(b) the clinical sufficiency, suitability, reliability or efficacy
of a particular product, service, process or activity as it relates to the
delivery of Dental Services;
(c) the Dentist of record's ability to exercise independent
professional judgment over all qualitative and quantitative aspects of the
delivery of Dental Services;
(d) the selection, compensation, terms, conditions, obligations or
privileges of employment or retention of Clinical personnel of the PA;
(e) the scope of services offered by the Dentist of record or the
PA;
(f) the methods of payment accepted by the Dentist of record or the
PA;
(g) the use of patient scheduling systems, marketing plans,
promotion or advertising for the Dentist of record or the PA which, in the
judgment of the PA's representative to the Policy Board will have the effect of
discouraging new patients from coming into the practice or discouraging patients
of record from seeing the Dentist or postponing future appointments or which
gives scheduling preference to one individual, class or group of existing or new
patients over another individual, class or group of existing or new patients;
9
(h) reporting perceived violations of the Act or the regulations
promulgated pursuant thereunder to, or seeking clarification from, appropriate
state or federal agencies, departments or boards;
(i) compliance with the requirements of the Act with respect to the
keeping of records for all patients; and
(j) Any other function or decision relating to the practice of
dentistry, including but not limited to (i) the selection of a course of
treatment for a patient, the procedures or materials to be used as part of such
course of treatment and the manner in which such course of treatment is carried
out; (ii) the patient records of PA; (iii) policies and decisions relating to
pricing, credit, refunds, warranties and advertising; and (iv) decisions
relating to office personnel and hours of practice.
The Policy Board meetings shall be held as mutually agreed, but at least
quarterly, in Florida. Meetings shall be open to any shareholder of PA.
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
as are necessary and appropriate for the day-to-day administration of the
business aspects of PA's operations, including without limitation those set
forth in this Article IV in accordance with all law, rules, regulations and
guidelines applicable to the provision of Management Services.
Section 4.1 Centers and Equipment.
(a) Subject to Section 4.1(b), as necessary and appropriate, taking
into consideration the professional concerns of PA, Business Manager shall in
its reasonable discretion lease, acquire or otherwise procure Centers in a
location or locations reasonably acceptable to PA and shall permit PA to use
each such Center pursuant to this Management Services Agreement, by sublease or
otherwise as required by law.
(b) PA shall not enter into any lease or sublease with respect to a
Center without Business Manager's prior consent. In the event PA is the lessee
of any Center under a lease with an unrelated and nonaffiliated lessor, Business
Manager may require PA to assign such lease to Business Manager upon receipt of
consent from the lessor and Business Manager shall permit PA to use such Center
pursuant to this Management Services Agreement, by sublease or otherwise as
required by law. PA shall use its best efforts to assist in obtaining the
lessor's consent to the assignment. Upon request, PA shall execute any
instruments and shall take any acts that Business
10
Manager may deem necessary to accomplish the assignment of the lease. Any
expenses incurred in the assignment shall be Office Expenses.
(c) Business Manager shall provide all nondental equipment,
fixtures, office supplies, furniture and furnishings deemed reasonably necessary
by Business Manager for the operation of each Center and reasonably necessary
for the provision of Dental Services pursuant to this Management Services
Agreement, by lease, sublease or otherwise as required by law.
(d) Business Manager shall provide, finance, or cause to be provided
or financed dental related equipment as required by PA. PA shall have final
authority in all dental equipment selections, and Business Manager shall have no
authority in regard to dental equipment selection issues. Business Manager may,
however, advise PA on the relationship between its dental equipment decisions
and the overall administrative and financial operations of the practice. All
dental and nondental equipment acquired for the use of PA shall be owned by
Business Manager; provided, however, that PA shall maintain complete care,
custody and control of all dental equipment.
(e) Business Manager shall be responsible for the repair and
maintenance of each Center, consistent with Business Manager's responsibilities
under the terms of any lease or other use arrangement.
Section 4.2 Dental Supplies. After consultation with PA and with
PA's approval, Business Manager shall order, procure, purchase and provide on
behalf of and as agent for PA all dental supplies necessary and appropriate for
the practice of PA in the reasonable discretion of PA unless otherwise
prohibited by federal and/or State law. Furthermore, Business Manager shall
ensure that each Center is at all times adequately stocked with the dental
supplies that are necessary and appropriate for the operation of PA and required
for the provision of Dental Services. The ultimate oversight, supervision and
ownership for all dental supplies is and shall remain the sole responsibility of
PA. As used in this provision the term "dental supplies" shall mean all drugs,
pharmaceuticals, products, substances, items or devices whose purchase,
possession, maintenance, administration, prescription or security requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or State law.
Section 4.3 Support Services. Business Manager shall provide or
arrange for all printing, stationery, forms, postage, duplication or
photocopying services, and other support services as are reasonably necessary
and appropriate for the operation of each Center and the provision of Dental
Services therein.
11
Section 4.4 Quality Assurance, Risk Management, and Utilization
Review. Business Manager shall, upon the request of PA, assist PA in PA's
establishment of procedures to ensure the consistency, quality, appropriateness
and necessity of Dental Services provided by PA, and shall provide
administrative support for PA's overall quality assurance, risk management, and
utilization review programs; provided, however, that PA shall have complete
authority concerning the provision of professional or Dental Services. Business
Manager shall perform these tasks in a manner to ensure the confidentiality and
nondiscoverability of these program actions to the fullest extent allowable
under State and federal law.
Section 4.5 Licenses and Permits. Business Manager shall, on behalf
of and in the name of PA, coordinate all development and planning processes, and
apply for and use reasonable efforts to obtain and maintain all federal, State,
and local licenses and regulatory permits required for or in connection with the
operation of PA and equipment (existing and future) located at each Center,
other than those relating to the practice of dentistry or the administration of
drugs by Dentists retained by or associated with PA.
Section 4.6 Personnel. Business Manager shall be entitled to make
recommendations to PA relating to selecting, hiring, training, supervising, and
terminating, all management, administrative, clerical, secretarial, bookkeeping,
accounting, payroll, billing and collection and other nonprofessional personnel
as Business Manager deems appropriate to enable Business Manager to perform its
duties and obligations under this Management Services Agreement.
Section 4.7 Contract Negotiations. Business Manager shall advise PA
with respect to and negotiate, either directly or on PA's behalf, as appropriate
and allowed by law, and the Policy Board shall make recommendations regarding
arrangements between PA and third parties as are appropriate for PA's provision
of Dental Services, including, without limitation, negotiated price agreements
with third party payors, alternative delivery systems, or other purchasers of
group health care services; provided, however, that PA shall have sole
responsibility for decisions relating to entering into such arrangements.
Section 4.8 Billing and Collection. On behalf of and for the account
of PA, Business Manager shall establish and maintain credit and billing and
collection policies and procedures approved by PA, and shall timely xxxx and
collect all professional and other fees for all Dental Services provided by PA,
or Dentists employed or otherwise retained by PA. Business Manager shall advise
and consult with PA regarding the fees for Dental Services provided by PA; it
being understood, however, that PA shall establish the fees to be charged for
Dental Services and that Business Manager shall have no authority whatsoever
with respect to the establishment of such fees. In connection with the billing
and collection services to be provided hereunder, and throughout the
12
Term (and thereafter as provided in Section 7.3), PA hereby grants to Business
Manager a special power of attorney and appoints Business Manager as PA's
exclusive true and lawful agent and attorney-in-fact, and Business Manager
hereby accepts such special power of attorney and appointment, for the following
purposes:
(a) To xxxx PA's patients, in PA's name and on PA's behalf, for all
Dental Services provided by PA to patients.
(b) To xxxx, in PA's name and on PA's behalf, all claims for
reimbursement or indemnification from Blue Shield/Blue Cross, insurance
companies and all other third party payors or fiscal intermediaries for all
covered billable Dental Services provided by PA to patients.
(c) To collect and receive in Business Manager's name and for
Business Manager's account all accounts receivable of PA purchased by Business
Manager, and to deposit such collections in an account selected by Business
Manager and maintained in Business Manager's name.
(d) To collect and receive, in PA's name and on PA's behalf, all
accounts receivable generated by such xxxxxxxx and claims for reimbursement that
have not been purchased by Business Manager, to administer such accounts
including, but not limited to, (i) extending the time of payment of any such
accounts for cash, credit or otherwise; (ii) discharging or releasing the
obligors of any such accounts; (iii) suing, assigning or selling at a discount
such accounts to collection agencies; or (iv) taking other measures to require
the payment of any such accounts.
(e) To deposit all amounts collected under clause (d) above into PA
Account which shall be and at all times remain in PA's name. PA covenants to
transfer and deliver to Business Manager for deposit into PA Account (or, with
respect to accounts receivable purchased by Business Manager, Business Manager's
account) all funds received by PA from patients or third party payors for Dental
Services. Upon receipt by Business Manager of any funds from patients or third
party payors or from PA pursuant hereto for Dental Services, Business Manager
shall immediately deposit those that relate to accounts receivable covered by
clause (d) above into the PA Account. Business Manager shall disburse such
deposited funds to creditors and other persons on behalf of PA, maintaining
records of such receipt and disbursement of funds in accordance with Section
4.9(b).
(f) To take possession of, endorse in the name of PA, and deposit
into the PA Account any notes, checks, money orders, insurance payments, and any
other instruments received in payment for Dental Services that relate to
accounts receivable covered by clause (d) above.
13
(g) To sign checks, drafts, bank notes or other instruments on
behalf of PA, and to make withdrawals from the PA Account for payments specified
in this Management Services Agreement.
Upon request of Business Manager, PA shall execute and deliver to the financial
institution wherein the PA Account is maintained, such additional documents or
instruments as may be necessary to evidence or effect the special and limited
power of attorney granted to Business Manager by PA pursuant to this Section 4.8
or pursuant to Section 4.9 of this Management Services Agreement. The special
and limited power of attorney granted herein shall be coupled with an interest
and shall be irrevocable except with Business Manager's written consent. The
irrevocable power of attorney shall expire on the later of when this Management
Services Agreement has been terminated, when all accounts receivable purchased
by Business Manager have been collected, or when all Management Fees due to
Business Manager have been paid. If Business Manager assigns this Management
Services Agreement in accordance with its terms, then PA shall execute a power
of attorney in favor of the assignee including substantially the same terms set
forth in this Section 4.8.
Section 4.9 PA Account.
(a) Access. Business Manager shall have access to the PA Account
solely for the purposes contemplated hereby. PA shall neither draw checks on the
PA Account nor request Business Manager to do so.
(b) Priority of Payments. Business Manager shall apply on a monthly
basis, except as otherwise stated hereunder, funds that are in the PA Account in
the following order of priority: (i) PA Expenses; (ii) Office Expenses (other
than the Base Management Fee); (iii) Management Fees (both Base Management Fee
and Performance Fee); and (iv) any other expenditures.
Section 4.10 Fiscal Matters.
(a) Annual Budget.
(1) Initial Budget. The initial Budget shall be agreed upon
and approved in writing by the parties before the execution of this
Management Services Agreement. The initial Budget shall include an
exhibit setting forth the criteria under which Business Manager shall be
entitled to receive the Performance Fee.
(2) Process for Succeeding Budgets. Annually and at least
thirty (30) days prior to the commencement of each fiscal year of PA,
Business Manager, in consultation with PA's representative to the Policy
Board, shall prepare and deliver to PA for PA's approval
14
a proposed Budget, setting forth an estimate of PA's revenues and
expenses for the upcoming fiscal year (including, without limitation,
the Management Fee and Performance Fee associated with the services
provided by Business Manager hereunder). PA shall review the proposed
Budget and either approve the proposed Budget or request any changes
within fifteen (15) days after receiving the proposed Budget. The Budget
shall be adopted by PA after its approval thereof and may be revised or
modified only in consultation with the Business Manager.
(3) Succeeding Budgets; Special Rates. In each succeeding
Budget, unless the parties otherwise mutually agree or are otherwise
precluded by law or regulation, the criteria for the Performance Fee and
Business Manager's right to receive the Performance Fee shall be
continued on the same basis.
(4) Deadlock. In the event the parties are unable to agree
on a Budget by the beginning of the fiscal year, until an agreement is
reached, the Budget for the prior year shall be deemed to be adopted as
the Budget for the current year, with each line item in the Budget (with
the exception of the Base Management Fee and any one-time or
non-recurring expenses included in such prior Budget) increased or
decreased by (i) the percentage by which the Adjusted Gross Revenue in
the current year has increased or decreased compared to the
corresponding period of the prior year; (ii) the increase or decrease
from the prior year in the Consumer Price Index - Health/Medical
Services, Pinellas, Florida area; and (iii) the proportionate increase
or decrease in mutually agreed upon personnel costs as measured by the
increase or decrease in full-time-equivalent personnel.
(5) Obligation of Business Manager. Business Manager shall
use commercially reasonable efforts to manage and administer the
operations of PA as herein provided so that the actual revenues, costs
and expenses of the operation and maintenance of PA during any
applicable period of PA's fiscal year shall be consistent with the
Budget.
(b) Accounting and Financial Records. Business Manager shall
establish and administer accounting procedures, controls, and systems for the
development, preparation, and safekeeping of administrative or financial records
and books of account relating to the business and financial affairs of PA and
the provision of Dental Services, all of which shall be prepared and maintained
in accordance with GAAP and applicable laws and regulations. Business Manager
shall prepare and deliver to PA, within one hundred twenty (120) days of the end
of each calendar year, a balance sheet and a profit and loss statement
reflecting the financial status of PA in regard to the provision of Dental
Services as of the end of such calendar year, all of which shall be prepared in
accordance
15
with GAAP consistently applied. In addition, Business Manager shall prepare or
assist in the preparation of any other financial statements or records as PA may
reasonably request.
(c) Review of Expenditures. PA's representative to the Policy Board
shall review all expenditures related to the operation of PA, but such PA
representative shall not have the power to prohibit or invalidate any
expenditure that is consistent with the Budget. Business Manager shall not have
any authority to make any expenditures not consistent with the Budget without PA
Consent.
(d) Tax Matters.
(1) In General. Business Manager shall prepare or arrange
for the preparation by an accountant approved in advance
by PA (which approval shall not be unreasonably
withheld) of all appropriate tax returns and reports
required of PA.
(2) Sales and Use Taxes. Business Manager and PA acknowledge
and agree that to the extent that any of the services to
be provided by Business Manager hereunder may be subject
to any State sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from PA
and to remit same to the appropriate tax collection
authorities. PA agrees to pay in addition to the payment
of the Management Fee, the applicable State sales and
use taxes in respect of the portion of the Management
Fees attributable to such services.
Section 4.11 Reports and Records. Subject to PA's prior consent, and
subject to the confidentiality requirements of Florida law, Business Manager
shall establish, monitor, and maintain procedures and policies for the timely
creation, preparation, filing and retrieval of all dental records generated by
PA in connection with PA's provision of Dental Services; and, subject to
applicable law, shall use its best efforts to ensure that dental records are
promptly available to Dentists and any other appropriate persons. All such
dental records shall be retained and maintained in accordance with all
applicable State and federal laws relating to the confidentiality and retention
thereof. All dental records shall be and remain the property and under the sole
control of PA and shall be located at the applicable Center so that they are
readily available for patient care, and PA shall remain the custodian thereof
and responsible for their maintenance. Business Manager shall use its reasonable
efforts to preserve the confidentiality of dental records and, subject to the
confidentiality requirements of Florida law, use information contained in such
records only for the limited purpose
16
necessary to perform the services set forth herein; provided, however, in no
event shall a breach of said confidentiality be deemed a default under this
Agreement.
Section 4.12 Recruitment of PA Dentists. Upon PA's request, Business
Manager shall perform all administrative services reasonably necessary and
appropriate to recruit potential Dentist personnel to become employees of PA.
Business Manager shall provide PA with model agreements to document PA's
employment, retention or other service arrangements with such individuals. It
will be and remain the sole and complete responsibility of PA to interview,
select, contract with, supervise, control and terminate all Dentists performing
Dental Services or other professional services, and Business Manager shall have
no authority whatsoever with respect to such activities.
Section 4.13 Business Manager's Insurance. Throughout the Term,
Business Manager shall, as an Office Expense, obtain and maintain with
commercial carriers, through self-insurance or some combination thereof,
appropriate worker's compensation coverage for Business Manager's employed
personnel provided pursuant to this Management Services Agreement, and
professional, casualty and comprehensive general liability insurance covering
Business Manager, Business Manager's personnel, and all of Business Manager's
equipment in such amounts, on such basis and upon such terms and conditions as
Business Manager deems appropriate. Upon the request of PA, Business Manager
shall provide PA with a certificate evidencing such insurance coverage. Business
Manager may also carry, as an Office Expense, key person life and disability
insurance on any shareholder or Dentist employee of PA in amounts determined
reasonable and sufficient by Business Manager. Business Manager shall be the
owner and beneficiary of any such insurance.
Section 4.14 No Warranty. PA acknowledges that Business Manager has
not made and will not make any express or implied warranties or representations
that the services provided by Business Manager will result in any particular
amount or level of dental practice or income to PA.
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PA
Section 5.1 Organization and Operation. PA, as a continuing
condition of Business Manager's obligations under this Management Services
Agreement, shall at all times during the Term be and remain legally organized
and operated to provide Dental Services in a manner consistent with all State
and federal laws. PA shall operate and maintain within the Practice Territory a
full time practice of dentistry specializing in the provision of Dental
Services.
17
Section 5.2 PA Personnel and Shareholders.
(a) Dental Personnel. PA shall retain, as a PA Expense and not as an
Office Expense, that number of Dentists as are reasonably necessary and
appropriate in the sole discretion of PA for the provision of Dental Services.
Each Dentist retained by PA shall hold and maintain a valid and unrestricted
license to practice dentistry in the State, and shall be competent in the
practice of dentistry, including any subspecialties that the retained Dentist
will practice on behalf of PA. PA shall enter into, maintain and enforce with
each such retained Dentist a written employment agreement in a form reasonably
satisfactory to PA and will not commit and permit to remain outstanding any
breach of such employment agreement that would allow the Dentist to terminate
for cause. PA shall be responsible for paying the compensation and benefits, as
applicable, for all Dentists and any other dental personnel or other contracted
or affiliated dentists, and for withholding, as required by law, any sums for
income tax, unemployment insurance, social security, or any other withholding
required by applicable law. Business Manager may, on behalf of PA, establish and
administer the compensation with respect to such individuals in accordance with
the written agreement between PA and each Dentist. Business Manager shall
neither control nor direct any Dentist in the performance of Dental Services for
patients.
(b) Employment of Non-dentist Dental Care Personnel. PA shall employ
or retain, as an Office Expense, all non-dentist personnel, including non-dental
care personnel and including dental assistants, dental hygienists and dental
technicians, required under the Act or otherwise required by law to work under
the direct supervision of a Dentist. Such non-dentist personnel shall be under
PA's control, supervision and direction in the performance of Dental Services
for patients.
(c) Option Agreement. Each shareholder of PA shall enter into and
comply with the terms and provisions of an Option Agreement with respect to his
or her ownership interest in PA, in form and substance acceptable to Business
Manager.
Section 5.3 Professional Standards. As a continuing condition of
Business Manager's obligations hereunder, each Dentist and any other dental
personnel retained by PA to provide Dental Services must (i) comply with, be
controlled and governed by and otherwise provide Dental Services in accordance
with the code of professional conduct and applicable federal, State and
municipal laws, rules, regulations, ordinances and orders, and the ethics and
standard of care of the dental community wherein any Center is located, and (ii)
obtain and retain appropriate dental staff membership with appropriate clinical
privileges at any hospital or health care facility at which Dental Services are
to be provided. Procurement of temporary staff privileges pending the completion
of the dental staff approval process shall satisfy this provision, provided the
Dentist actively pursues full appointment and actually receives full appointment
within a reasonable time.
18
Section 5.4 Dental Services. PA shall ensure that Dentists and
non-dentist dental care personnel are available to provide Dental Services to
patients. In the event that Dentists are not available to provide Dental
Services coverage, PA shall engage and retain locum tenens coverage as it deems
reasonable and appropriate based on patient care requirements. Dentists retained
on a locum tenens basis shall meet all of the requirements of Section 5.3, and
the cost of providing locum tenens coverage shall be a PA Expense. PA and the
Dentists shall be responsible for scheduling Dentist and non-dentist dental care
personnel coverage of all dental procedures. PA shall cause all Dentists to
develop and promote PA.
Section 5.5 Peer Review/Quality Assurance. PA shall adopt a peer
review/quality assessment program to monitor and evaluate the quality and
cost-effectiveness of Dental Services provided by dental personnel of PA. Upon
request of PA, Business Manager shall provide administrative assistance to PA in
performing its peer review/quality assurance activities, but only if such
assistance can be provided consistent with maintaining the confidentiality and
nondiscoverability of the processes and actions of the Peer Review/Quality
Assurance process of PA and not be regarded as practicing dentistry under the
Act.
Section 5.6 PA's Insurance. PA shall, as an Office Expense, obtain
and maintain with commercial carriers acceptable to Business Manager appropriate
worker's compensation coverage for PA's employed personnel, if any, and
professional and comprehensive general liability insurance covering PA and each
of the Dentists PA retains or employs to provide Dental Services. The
comprehensive general liability coverage shall be in the minimum amount of One
Million Dollars ($1,000,000) for each occurrence and Three Million Dollars
($3,000,000) annual aggregate; and professional liability coverage shall be in
the minimum amount of One Million Dollars ($1,000,000) for each occurrence and
Three Million Dollars ($3,000,000) annual aggregate. The insurance policy or
policies shall provide for at least thirty (30) days advance written notice to
PA from the insurer as to any alteration of coverage, cancellation, or proposed
cancellation for any cause. PA shall cause to be issued to Business Manager by
such insurer or insurers a certificate reflecting such coverage and shall
provide written notice to Business Manager promptly upon receipt of notice given
to Dentist of the cancellation or proposed cancellation of such insurance for
any cause. Upon the termination of this Management Services Agreement for any
reason, PA shall obtain and maintain as a PA Expense "tail" professional
liability coverage, in the amounts specified in this section for an extended
reporting period of 15 years, and PA shall be responsible for paying all
premiums for "tail" insurance coverage. In no event shall the professional
liability insurance carrier be replaced or changed without PA Consent and
Business Manager Consent. PA and Business Manager agree to use their best
efforts to have each other named as additional insureds on the other's
respective professional liability insurance at Business Manager's expense.
19
Section 5.7 Confidential and Proprietary Information. PA will not
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization, such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
PA will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations; provided, however, that PA may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by PA that such Representatives will be
informed of the confidential nature of the Confidential Information, will agree
to be bound by this Section, and will be directed by PA not to disclose to any
other person any Confidential Information. PA agrees to be responsible for any
breach of this Section by its Representatives. If PA is requested or required
(by oral questions, interrogatories, requests for information or documents,
subpoenas, civil investigative demands, or similar processes) to disclose or
produce any Confidential Information furnished in the course of its dealings
with Business Manager or its affiliates, advisors, or Representatives, PA will
(i) provide Business Manager with prompt notice thereof and copies, if possible,
and, if not, a description, of the Confidential Information requested or
required to be produced so that Business Manager may seek an appropriate
protective order or waive compliance with the provisions of this Section and
(ii) consult with Business Manager as to the advisability of Business Manager's
taking of legally available steps to resist or narrow such request. PA further
agrees that, if in the absence of a protective order or the receipt of a waiver
hereunder PA is nonetheless, in the written opinion of its legal counsel,
compelled to disclose or produce Confidential Information concerning Business
Manager to any tribunal or to stand liable for contempt or suffer other censure
or penalty, PA may disclose or produce such Confidential Information to such
tribunal legally authorized to request and entitled to receive such Confidential
Information without liability hereunder; provided, however, that PA shall give
Business Manager written notice of the Confidential Information to be so
disclosed or produced as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such Confidential Information so required to be disclosed or
produced.
Section 5.8 Noncompetition. PA hereby recognizes and acknowledges
that Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, PA will be privy to financial and Confidential Information, to which
PA would not otherwise be exposed. The parties also recognize that the services
to be provided by Business Manager will be feasible only if PA operates an
active practice to which the Dentists associated with PA devote their full
professional time and attention. PA agrees and
20
acknowledges that the noncompetition covenants described hereunder are necessary
for the protection of Business Manager, and that Business Manager would not have
entered into this Management Services Agreement without the following covenants.
(a) During the Term of this Management Services Agreement and except
for its obligations pursuant to this Management Services Agreement, PA shall not
establish, operate, or provide Dental Services at a dental office, clinic or
other health care facility anywhere within the Practice Territory.
(b) Except as specifically agreed to by Business Manager in writing,
PA covenants and agrees that during the Term of this Management Services
Agreement and for a period of five (5) years from the date this Management
Services Agreement is terminated, PA shall not directly or indirectly own
(excluding ownership of less than five percent (5%) of the equity of any
publicly traded entity), manage, operate, control, or be otherwise associated
with, lend funds to, lend its name to, or maintain any interest whatsoever in
any enterprise (i) having to do with the provision, distribution, promotion, or
advertising of any type of management or administrative services or products to
third parties in competition with Business Manager, in the Practice Territory;
and/or (ii) offering any type of service(s) or product(s) to third parties
substantially similar to those offered by Business Manager to PA in the Practice
Territory. Notwithstanding the above restriction, nothing herein shall prohibit
PA or any of its shareholders from providing management and administrative
services to its or their own dental practices after the termination of this
Management Services Agreement.
(c) The written employment agreements described in Section 5.2 shall
contain covenants of the shareholder employees pursuant to which the
shareholders agree not to compete with PA within the Practice Territory for one
(1) year after termination of the employment agreement in accordance with the
terms, conditions and limitations contained therein.
(d) PA shall obtain formal written agreements from its dentist
employees in the form of Exhibit 5.2(a), pursuant to which the employees agree
not to compete with PA within the Noncompetition Territory (as defined in such
employment agreements) for one (1) year after termination of the employment
agreement in accordance with the terms, conditions and limitations contained
therein.
(e) PA understands and acknowledges that the foregoing provisions in
Section 5.7 and Section 5.8 are designed to preserve the goodwill of Business
Manager and the goodwill of the individual Dentists of PA. Accordingly, if PA
breaches any obligation of Section 5.7 or Section 5.8, in addition to any other
remedies available under this Management Services Agreement, at law or
21
in equity, Business Manager shall be entitled to enforce this Management
Services Agreement by injunctive relief and by specific performance of the
Management Services Agreement. Additionally, nothing in this paragraph shall
limit Business Manager's right to recover any other damages to which it is
entitled as result of PA's breach. If any provision of the covenants is held by
a court of competent jurisdiction to be unenforceable due to an excessive time
period, geographic area, or restricted activity, the covenant shall be reformed
to comply with such time period, geographic area, or restricted activity that
would be held enforceable.
Section 5.9 Name, Trademark. PA represents and warrants that, as of
the date hereof, PA conducts its professional practice under the name of, and
only under the name of "Castle 1st Dental Care, P.A." and that such name has
been licensed to PA by Business Manager. PA covenants and promises that, without
the prior written consent of the Business Manager, PA will not:
(a) take any action or omit to take any action that is reasonably
likely to result in the change or loss of the name;
(b) license, sell, give, or otherwise transfer the name or the right
to use the name to any dental practice, dentist, professional corporation, or
any other entity; or
(c) cease conducting the professional practice of PA under the name.
Section 5.10 Peer Review. PA shall designate a committee of Dentists
to function as a dental peer review committee to review credentials of potential
recruits, perform quality assurance functions, and otherwise resolve dental
competence issues. The dental peer review committee shall function pursuant to
formal written policies and procedures.
Section 5.11 Indemnification. PA shall indemnify, hold harmless and
defend Business Manager, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), whether or not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of Dental Services or any other acts or omissions by
PA and/or its shareholders, agents, employees and/or subcontractors (other than
Business Manager) during the term hereof. Business Manager shall indemnify, hold
harmless and defend PA, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts, or omissions by Business Manager and/or its shareholders,
agents, employees and/or subcontractors (other than PA) during the term of this
Agreement.
22
ARTICLE VI. FINANCIAL ARRANGEMENT
Section 6.1 Definitions. For purposes of this Article VI,
capitalized terms used herein shall have the meanings ascribed as follows:
(a) Base Management Fee. The Base Management Fee shall be the
amount, calculated on a monthly basis, that is equal to twelve and one-half
percent (12.5%) of the Adjusted Gross Revenue attributable to the applicable
monthly period.
(b) Performance Fee. The Performance Fee shall be the amount,
calculated on a monthly basis, that is calculated in accordance with the
Applicable Exhibit to the Budget.
Section 6.2 Management Fee. PA and Business Manager agree to the
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by Section
4.9 (b), Business Manager shall be paid the following:
(i) the amount of all Office Expenses (other than the Base
Management Fee) paid by the Business Manager on behalf of PA.
(ii) the Base Management Fee.
(iii) the Performance Fee.
Section 6.3 Adjustments. If there are not sufficient funds to pay
either or both of the Base Management Fee or the Performance Fee, all unpaid
amounts shall accumulate and carry over from month to month until paid or until
the termination of this Management Services Agreement, in which case such unpaid
amounts shall be immediately due and payable as of the date of termination.
Amounts carried over shall earn interest at the rate of ten percent (10%) per
annum. Furthermore, the amount of the Performance Fee paid will be monitored and
reconciled on an annual basis and any overpayments of the Performance Fee shall
be promptly refunded by the Business Manager.
Section 6.4 Reasonable Value. Payment of the Base Management Fee or
Performance Fee is not intended to be and shall not be interpreted or applied as
permitting Business Manager to share in PA's fees for Dental Services or any
other services, but is acknowledged as the parties' negotiated agreement as to
the reasonable fair market value of the contract analysis and support, other
support services, purchasing, personnel, office space, management,
administration, strategic management and other items and services furnished by
Business Manager pursuant to this
23
Management Services Agreement, considering the nature and volume of the services
required and the risks assumed by Business Manager.
Section 6.5 Payment of Management Fee. To facilitate the payment of
the Management Fee as provided in Section 6.1 hereof, PA hereby expressly
authorizes Business Manager to make withdrawals of the Management Fee from the
PA Account as such fee becomes due and payable during the Term and thereafter as
provided in Section 7.3.
Section 6.6 Accounts Receivable. To assure that PA receives the
entire amount of professional fees for its services and to assist PA in
maintaining reasonable cash flow for the payment of Office Expenses, Business
Manager may, during the Term, purchase, without recourse to PA for the amount of
the purchase, the accounts receivable of PA arising during the previous month by
transferring the amount set forth below into the PA Account. The consideration
for the purchase shall be an amount equal to the Adjusted Gross Revenue recorded
each month (according to GAAP reflecting adjustments related to the bad debt
reserve). Business Manager shall be entitled to offset Office Expenses
reimbursement due to Business Manager under Section 6.2 above against the amount
payable for the accounts receivable. Although it is the intention of the parties
that Business Manager purchase and thereby become the owner of the accounts
receivable of PA, in the event such purchase shall be ineffective for any
reason, PA is concurrently herewith granting to Business Manager a security
interest in the accounts so purchased, and PA shall cooperate with Business
Manager and execute all documents in connection with the pledge of such
purchased accounts receivable to Business Manager. All collections in respect to
such accounts receivable purchased by Business Manager shall be received by
Business Manager as the agent of PA and shall be endorsed to Business Manager
and deposited in a bank account at a bank designated by Business Manager. To the
extent PA comes into possession of any payments in respect of such accounts
receivable, PA shall direct such payments to Business Manager for deposit in
bank accounts designated by Business Manager; provided, however, that nothing
contained herein shall be construed as PA relinquishing control over credit
extended by PA.
Section 6.7 Disputes Regarding Fees. PA shall not be entitled to a
set-off or reduction in its Management Fees by reason of its belief that
Business Manager has failed to perform its obligations hereunder or otherwise.
24
ARTICLE VII. TERM AND TERMINATION
Section 7.1 Initial and Renewal Term. The Term of this Management
Services Agreement will be for an initial period of twenty-five (25) years after
the effective date, and shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business Manager nor PA shall
have given notice of termination of this Management Services Agreement at least
ninety (90) days before the end of the initial term or any renewal term, or
unless otherwise terminated as provided in Section 7.2 of this Management
Services Agreement.
Section 7.2 Termination.
(a) Termination By Business Manager. Subject to Section 7.2(c),
Business Manager may only terminate this Management Services Agreement either
without cause upon ninety (90) days' written notice to PA, or upon the
occurrence of any one of the following events which shall be deemed to be "for
cause":
(i) The dissolution of PA or the filing of a petition in
voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily or
involuntarily under any State or federal statute for the
protection of debtors;
(ii) PA materially defaults in the performance of any of its
material duties or obligations hereunder, and such
default continues for thirty (30) days after PA receives
notice of the default.
(b) Termination By PA. Subject to Section 7.2(c) PA may only
terminate this Management Services Agreement upon any of the following
occurrences which shall be deemed to be "for cause":
(i) The dissolution of Business Manager or the filing of a
petition in voluntary bankruptcy, an assignment for the
benefit of creditors, or other action taken voluntarily
or involuntarily under any State or federal statute for
the protection of debtors; or
(ii) In the event that Business Manager materially defaults
in the performance of any of its material obligations
hereunder and such default continues for sixty (60) days
after Business Manager receives notice of the default.
Termination by PA hereunder shall require the affirmative vote of three-fourths
of the outstanding voting shares of the common shareholders of PA entitled to
vote.
25
(c) Termination by Agreement. In the event PA and Business Manager
shall mutually agree in writing, this Management Services Agreement may be
terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
there shall be a change in the Act, any federal or State statutes, case laws,
regulations or general instructions, the interpretation of any of the foregoing,
the adoption of new federal or State legislation, or a change in any third party
reimbursement system, any of which are reasonably likely to adversely affect the
manner in which either party may perform or be compensated for its services
under this Management Services Agreement or which shall make this Management
Services Agreement unlawful, the parties shall immediately enter into good faith
negotiations regarding a new service arrangement or basis for compensation for
the services furnished pursuant to this Management Services Agreement that
complies with the law, regulation, or policy and that approximates as closely as
possible the economic position of the parties prior to the change. If good faith
negotiations cannot resolve the matter, it shall be submitted to arbitration as
referenced in Section 8.6; provided however that in the event that the Florida
Board of Dentistry or other authorized regulatory body issues a final and
non-appealable order revoking the license of any Dentist on the grounds that
PA's entering into and performing its obligations under this Management Services
Agreement is unlawful, PA may terminate this Management Services Agreement upon
thirty (30) days prior written notice.
Section 7.3 Effects of Termination. Upon termination of this
Management Services Agreement, as hereinabove provided, neither party shall have
any further obligations hereunder except for (i) obligations accruing prior to
the date of termination, including, without limitation, payment of the
Management Fees and PA Expenses relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises,
or covenants set forth herein that are expressly made to extend beyond the Term,
including, without limitation, indemnities, which provisions shall survive the
expiration or termination of this Management Services Agreement for any reason,
and noncompetition provisions, which provisions shall survive the expiration or
termination of this Management Services Agreement by Business Manager for cause
or by PA in breach of this Agreement, and (iii) the obligations of PA and
Business Manager described in Section 7.4. In effectuating the provisions of
this Section 7.3, PA specifically acknowledges and agrees that Business Manager
shall continue to collect and receive on behalf of PA all cash collections from
accounts receivable in existence at the time this Management Services Agreement
is terminated, it being understood that such cash collections will represent, in
part, compensation to Business Manager for management services already rendered
and compensation on accounts receivable purchased by Business Manager. Upon the
expiration or termination of this
26
Management Services Agreement for any reason or cause whatsoever, Business
Manager shall surrender to PA all books and records pertaining to PA's dental
practice.
ARTICLE VIII. MISCELLANEOUS
Section 8.1 Administrative Services Only. Nothing in this Management
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which PA and its
Dentists perform Dental Services or other professional health care services. The
rendition of all Dental Services, including, but not limited to, the
prescription or administration of drugs shall be the sole responsibility of PA
and its Dentists, and Business Manager shall not interfere in any manner or to
any extent therewith. Nothing contained in this Management Services Agreement
shall be construed to permit Business Manager to engage in the practice of
dentistry, it being the sole intention of the parties hereto that the services
to be rendered to PA by Business Manager are solely for the purpose of providing
nondental management and administrative services to PA so as to enable PA to
devote its full time and energies to the professional conduct of its dental
practice and provision of Dental Services to its patients and not to
administration, or practice management.
Section 8.2 Status of Contractor; Agency. It is expressly
acknowledged that the parties hereto are independent contractors and that this
Management Services Agreement is intended to constitute Business Manager as PA's
agent. Nothing herein shall be construed to create an employer/employee,
partnership, or joint venture relationship, or to allow either to exercise
control or direction over the manner or method by which the other performs the
services that are the subject matter of this Management Services Agreement or to
permit Business Manager to take any action that would constitute the practice of
dentistry; provided always that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands and
agrees that (i) the other will not be treated as an employee for federal tax
purposes, (ii) neither will withhold on behalf of the other any sums for income
tax, unemployment insurance, social security, or any other withholding pursuant
to any law or requirement of any governmental body or make available any of the
benefits afforded to its employees, (iii) all of such payments, withholdings,
and benefits, if any, are the sole responsibility of the party incurring the
liability, and (iv) each will indemnify and hold the other harmless from any and
all loss or liability arising with respect to such payments, withholdings, and
benefits, if any.
27
Section 8.3 Notices. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be in writing and shall be
served on the parties at the following respective addresses:
PA: Castle 1st Dental Care, P.A.
00000 X.X. Xxxxxxx 00X., Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Business Manager: CASTLE DENTAL CENTERS OF FLORIDA, INC.
0000 Xxxx Xxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted, or desired to be given hereunder shall be
sent either (a) by hand delivery, in which case notice shall be deemed received
when actually delivered, (b) by prepaid certified or registered mail, return
receipt requested, in which case notice shall be deemed received five calendar
days after deposit, postage prepaid in the United States Mail, or (c) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after deposit with such courier.
Section 8.4 Governing Law. This Management Services Agreement shall
be governed by the laws of the State of Florida applicable to agreements to be
performed wholly within the State. Florida law was chosen by the parties after
negotiation to govern interpretation of this Management Services Agreement
because Pinellas County, Florida is the seat of management for Business Manager.
The federal and State courts of Pinellas County, Florida shall be the exclusive
venue for any litigation, special proceeding, or other proceeding between the
parties that may arise out of, or be brought in connection with or by reason of,
this Management Services Agreement.
Section 8.5 Assignment. Except as may be herein specifically
provided to the contrary, this Management Services Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that PA may not
assign this Management Services Agreement without the prior written consent of
Business Manager, which consent may be withheld. The sale, transfer, pledge, or
assignment of any of the common shares held by any shareholder of PA or the
issuance by PA of common or other voting shares to any other person, or any
combination of such transactions within a period of one (1) year, such that the
existing shareholder in PA fails to maintain a majority of the voting interests
in PA shall be deemed an attempted assignment by PA, and shall be null and void
unless consented
28
to in writing by Business Manager prior to any such transfer or issuance. Any
breach of this provision, whether or not void or voidable, shall constitute a
material breach of this Management Services Agreement, and in the event of such
breach, Business Manager may terminate this Management Services Agreement upon
twenty-four (24) hours notice to PA.
Section 8.6 Arbitration.
(a) General. The parties shall use good faith negotiation to resolve
any controversy, dispute or disagreement arising out of or relating to this
Management Services Agreement or the breach of this Management Services
Agreement. Any matter not resolved by negotiation shall be submitted to binding
arbitration and such arbitration shall be governed by the terms of this Section
8.6.
(b) Scope. Unless otherwise specifically provided herein, the
parties hereto agree that any claim, controversy, dispute or disagreement
between or among any of the parties hereto arising out of or relating to this
Management Services Agreement (other than claims involving any noncompetition or
confidentiality covenant) shall be governed exclusively by the terms and
provisions of this Section 8.6; provided, however, that the terms and provisions
of this Section 8.6 shall not preclude any party hereto from seeking, or a court
of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant herein or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(c) Arbitrators. In the event of any claim, controversy, dispute or
disagreement between the parties hereto arising out of or relating to this
Management Services Agreement, and in the further event the parties are unable
to resolve such claim, controversy, dispute or disagreement within thirty (30)
days after notice is first delivered pursuant to Section 8.3, the parties agree
to select arbitrators to hear and decide all such claims under this Section 8.6.
Each party shall select one arbitrator, The two arbitrators so chosen shall then
select a third arbitrator who is experienced in the matter or action that is
subject to such arbitration. If such matter or action involves health-care
issues, then the third arbitrator shall have such qualifications as would
satisfy the requirements of the National Health Lawyers Association Alternative
Dispute Resolution Service. Each of the arbitrators chosen shall be impartial
and independent of all parties hereto. If either of the parties fails to select
an arbitrator within twenty days after the end of such thirty-day period, or if
the arbitrators chosen fail to select a third arbitrator within twenty days,
then any party may in writing request the judge of the United States District
Court for the Middle District of Florida, Tampa Division, senior in term of
service to appoint the arbitrator or arbitrators and, subject to this Section
8.6, such arbitrators shall hear all arbitration matters arising under this
Section 8.6, and, in default of such selection, may ask the American Arbitration
Association.
29
(d) Applicable Rules.
(i) Each arbitration hearing shall be held at a place in Clearwater,
Florida acceptable to a majority of the arbitrators. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association to the
extent such rules do not conflict with the terms hereof. The
decision of a majority of the arbitrators shall be reduced to
writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be
entered and execution had in any court of competent jurisdiction
or application may be made to such court for a judicial
acceptance of the award and an order of enforcement. The charges
and expenses of the arbitrators shall be shared equally by the
parties to the hearing.
(ii) The arbitration shall commence within thirty (30) days after the
arbitrators are selected in accordance with the provisions of
this Section 8.6. In fulfilling their duties with respect to the
matter in arbitration, the arbitrators may consider such matters
as, in the opinion of the arbitrators, are necessary or helpful
to make a proper valuation. The arbitrators may consult with and
engage disinterested third parties to advise the arbitrators.
The arbitrators shall not add any interest factor reflecting the
time value of money to the amount of any award granted under any
arbitration hereunder and shall not award any punitive damages.
(iii) If any of the arbitrators selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the
remaining arbitrators or such senior judge (or such judge's
successor) shall select a replacement arbitrator. The procedure
set forth in this Section 8.6 for selecting the arbitrators
shall be followed from time to time as necessary.
(iv) As to the resolution of any claim, controversy, dispute or
disagreement that under the terms hereof is made subject to
arbitration, no lawsuit based on such resolution shall be
instituted by either of the parties hereto, other than to compel
arbitration proceedings or enforce the award of a majority of
the arbitrators.
(v) All privileges under Florida and federal law, including
attorney-client and work-product privileges, shall be preserved
and protected to the same extent that such privileges would be
protected in a federal court proceeding applying Florida law.
30
Section 8.7 Waiver of Breach. The waiver by either party of a breach
or violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
Section 8.8 Enforcement. In the event either party resorts to legal
action to enforce or interpret any provision of this Management Services
Agreement, the prevailing party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
Section 8.9 Gender and Number. Whenever the context of this
Management Services Agreement requires, the gender of all words herein shall
include the masculine, feminine, and neuter, and the number of all words herein
shall include the singular and plural.
Section 8.10 Additional Assurances. Except as may be herein
specifically provided to the contrary, the provisions of this Management
Services Agreement shall be self-operative and shall not require further
agreement by the parties; provided, however, at the request of either party, the
other party shall execute such additional instruments and take such additional
acts as are reasonable and as the requesting party may deem necessary to
effectuate this Management Services Agreement.
Section 8.11 Consents, Approvals, and Exercise of Discretion.
Whenever this Management Services Agreement requires any consent or approval to
be given by either party, or either party must or may exercise discretion, and
except where specifically set forth to the contrary, the parties agree that such
consent or approval shall not be unreasonably withheld or delayed, and that such
discretion shall be reasonably exercised.
Section 8.12 Force Majeure. Neither party shall be liable or deemed
to be in default for any delay or failure in performance under this Management
Services Agreement or other interruption of service deemed to result, directly
or indirectly, from acts of God, civil or military authority, acts of public
enemy, war, accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either party's employees,
or any other similar cause beyond the reasonable control of either party unless
such delay or failure in performance is expressly addressed elsewhere in this
Management Services Agreement.
Section 8.13 Severability. The parties hereto have negotiated and
prepared the terms of this Management Services Agreement in good faith with the
intent that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective parties. Accordingly, if
any one or more of the terms, provisions, promises, covenants or conditions of
this Management Services Agreement or the application thereof to any person or
circumstance
31
shall be adjudged to any extent invalid, unenforceable, void or voidable for any
reason whatsoever by a court of competent jurisdiction or an arbitration
tribunal, such provision shall be as narrowly construed as possible, and each
and all of the remaining terms, provisions, promises, covenants and conditions
of this Management Services Agreement or their application to other persons or
circumstances shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by law. To the extent this Management Services
Agreement is in violation of applicable law, then the parties agree to negotiate
in good faith to amend the Management Services Agreement, to the extent possible
consistent with its purposes, to conform to law.
Section 8.14 Divisions and Headings. The divisions of this Management
Services Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
Section 8.15 Amendments and Management Services Agreement Execution.
This Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of PA by its President, and on behalf of
Business Manager by any duly authorized officer thereof. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument.
Section 8.16 Entire Management Services Agreement. With respect to
the subject matter of this Management Services Agreement, this Management
Services Agreement supersedes all previous contracts and constitutes the entire
agreement between the parties. Neither party shall be entitled to benefits other
than those specified herein. No prior oral statements or contemporaneous
negotiations or understandings, except for the Budget, or prior written material
not specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Management Services Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated in such amendment(s).
The parties specifically acknowledge that, in entering into and executing this
Management Services Agreement, except for the Budget, the parties rely solely
upon the representations and agreements contained in this Management Services
Agreement and no others.
32
IN WITNESS WHEREOF, PA and Business Manager have caused this Management
Services Agreement to be executed by their duly authorized representatives, all
as of the day and year first above written.
PA: Castle 1st Dental Care, P.A.
By:
--------------------------------------
Xxxx X. Xxxxxx, D.D.S., President
BUSINESS MANAGER: CASTLE DENTAL CENTERS OF FLORIDA, INC.
By:
--------------------------------------
Xxxx X. Xxxxx, Vice President and Chief
Financial Officer
33
