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EXHIBIT 10.2
PREMIER ORTHODONTIC GROUP, INC.
CONSULTING AND BUSINESS SERVICES AGREEMENT
THIS CONSULTING AND BUSINESS SERVICES AGREEMENT (this
"Agreement"), dated as of _____________, 1997, by and between PREMIER
ORTHODONTIC GROUP, INC., a Delaware corporation, and its successor or assigns
("Premier") and _________________________________, a California
________________________ (the "Orthodontic Entity").
W I T N E S S E T H:
WHEREAS, the Orthodontic Entity owns and operates an
orthodontic practice with offices located in the facilities identified in
Exhibit 1.2 (the "Center(s)") and furnishes orthodontic and other dental care to
the general public through the services of the orthodontist(s) and dentist(s)
affiliated with the Orthodontic Entity to provide patient care at the Center(s)
(the "Orthodontist(s)"); and
WHEREAS, Premier is a company which has been formed to provide
business and consulting services to orthodontists; and
WHEREAS, the Orthodontic Entity and Premier mutually desire to
enter into this Consulting and Business Services Agreement.
NOW THEREFORE, in consideration of Ten Dollars ($10.00), the
mutual covenants and agreements herein contained, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. RESPONSIBILITIES OF PREMIER
1.1 General. Premier shall furnish the Orthodontic Entity
the business and consulting services described in this Agreement, subject to the
requirements of the California Dental Practice Act relating to, without
limitations, the control by dentists over the practice of dentistry.
1.2 Facilities and Equipment. Premier will consult with
and advise the Orthodontic Entity on its equipment and office needs and the
efficient configuration of its office space and will arrange for all equipment
and furnishings determined by the Orthodontic Entity to be necessary for the
operation of the Center, as specified on Exhibit 1.2 (together with any future
asset purchases in accordance herewith, the "Assets"). The Orthodontic Entity
shall have complete custody and control over the Assets provided to the
Orthodontic Entity by Premier, including, without limitation, the right to make
decisions, after consultation with Premier, with respect to the repair,
replacement, modification and upkeep of such Assets.
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Unless the Orthodontic Entity chooses to directly purchase furnishings,
equipment and related assets in the future, Premier shall purchase such assets
and lease such assets to the Orthodontic Entity under a capital leasing
arrangement with such terms as mutually agreed to by the Orthodontic Entity and
Premier. If the Orthodontic Entity chooses to purchase such assets, then it
shall depreciate such assets in accordance with generally accepted accounting
principles ("GAAP") and treat such depreciation as a Center Expense.
1.3 Personnel and Payroll. Premier will consult with the
Orthodontic Entity on its staffing needs. Premier will employ the staff
determined by the Orthodontic Entity to be necessary for the Center's
operations, as specified on Exhibit 1.3, except for the Orthodontists and
orthodontic and hygienist staff, who will be employed by the Orthodontic Entity.
At the election of the Orthodontic Entity, Premier will additionally assist in
staff scheduling, administer the Center's payroll and provide payroll accounting
services. The parties expressly agree that the Orthodontic Entity will have
discretion and control over all personnel and staffing matters in respect to the
Center's staff.
1.4 Business Systems, Procedures and Forms. Premier will
advise the Orthodontic Entity on and assist in the implementation and operation
of business systems and procedures. Premier will provide training to the
Center's staff in the use of such systems and procedures. Premier will
additionally provide the Orthodontic Entity clinical forms developed in
consultation with the Orthodontic Entity and will provide training to the
Center's staff in the use of such forms. The Orthodontic Entity expressly
acknowledges and agrees that it shall have no property rights in the foregoing
systems, procedures or clinical forms, and further agrees that such systems,
procedures and form shall be deemed to constitute Confidential Information
within the meaning of Section 2.8 hereof and shall be subject to the
restrictions on the use, appropriation and reproduction of such Confidential
Information provided for in Section 2.8. The parties agree that the Orthodontic
Entity's use of any such systems, procedures and forms shall be at the
Orthodontic Entity's sole discretion and, notwithstanding its use of any such
systems, procedures, or forms, the Orthodontic Entity shall retain control over
the management of all aspects of the Center's operations, including, without
limitation, patient scheduling.
1.5 Purchasing and Inventory Control. Premier in
consultation with the Orthodontic Entity, will provide the Orthodontic Entity
purchasing services for inventory and supplies and will be responsible for
maintaining the Center's inventory. The price charged to the Center for such
inventory and supplies shall be the same as the price paid by Premier, including
any rebates. In any event, the Orthodontic Entity has the right to purchase its
supplies from the supplier of its choice.
1.6 Accounting Services and Financial Reporting. Premier
will advise the Orthodontic Entity with respect to and provide or arrange for
all accounting and bookkeeping services reasonably required for the Center's
normal and routine operations. Premier will additionally advise the Orthodontic
Entity on and assist in implementing information systems designed in
consultation with the Orthodontic Entity to generate financial and operational
data
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concerning the Center. Premier will prepare and submit to the Orthodontic
Entity monthly operating data and quarterly financial reports with respect to
the Center's operations. Premier will analyze such data on an ongoing basis to
advise the Center on improving productivity.
1.7 Legal Compliance and Services. Premier will assist
the Orthodontic Entity in complying with applicable local, state, and federal
laws, rules, regulations and ordinances applicable to the Center's operations.
1.8 Marketing. Premier will advise the Orthodontic Entity
in designing and assist in executing a marketing plan to promote the Center's
professional services. In connection with the development of the marketing plan,
Premier will advise the Orthodontic Entity on establishing an installment plan
for patient payments, and, in the event the Orthodontic Entity elects to offer
such a plan, will assist in implementing and administering the plan. The
Orthodontic Entity shall exercise sole discretion and control over all policies
and decisions relating to marketing, pricing, credits, refunds, warranties and
advertising. All marketing activities hereunder will be conducted in compliance
with applicable laws and regulations of the State of California governing the
dental profession.
1.9 Planning. Premier will assess the business potential
of establishing orthodontic offices in new locations, and, in the event the
Orthodontic Entity elects to relocate or open an office in a new location,
subject to mutual agreement, Premier will provide assistance to the Orthodontic
Entity as appropriate.
1.10 Billing and Collections. Premier shall provide
billing and collection services for all professional services rendered at the
Center, all such billing and collections to be done in the name of and subject
to the control of the Orthodontic Entity.
1.11 Payment Services. On a continuous basis, the accounts
receivable of the Orthodontic Entity shall be deposited with Premier for the
Orthodontic Entity's account, and Premier shall use the funds collected from
such accounts receivable to pay the Consulting Fee (as hereinafter defined) and
to pay, on the Orthodontic Entity's behalf as a Center Expense (as hereinafter
defined) and otherwise, all expenses of the Orthodontic Entity duly authorized
for payment by the Orthodontic Entity and shall return to the Orthodontic Entity
any funds remaining after payment in full of such items.
1.12 Disbursement of Funds. (a) All monies collected by
Premier from the Orthodontic Entity's accounts receivable pursuant to Section
1.10 above shall be deposited into an account (the "Orthodontic Entity Account")
with a bank whose deposits are insured with the Federal Deposit Insurance
Corporation. The Orthodontic Entity Account shall contain the name of the
Orthodontic Entity, but Premier shall make all disbursements therefrom. Premier
shall account for all monies so disbursed from the Orthodontic Entity Account.
From the funds collected and deposited each month by Premier in the Orthodontic
Entity Account, Premier shall make the following disbursements, among others,
promptly when payable.
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(i) Compensation payable to all employees of the
Orthodontic Entity, and all taxes and assessments payable to
local, state and Federal governments in connection with the
employment of such personnel; and
(ii) All other sums otherwise due and payable by
the Orthodontic Entity as Center Expenses or otherwise,
including, without limitation, the Consulting Fee.
(b) In the event the funds in the Orthodontic Entity
Account will, at any time, be insufficient to cover current expenses, Premier
shall notify the Orthodontic Entity and Premier shall advance to the Orthodontic
Entity the necessary funds to pay current expenses for the benefit of the
Orthodontic Entity, which advances will be deemed to be loans to the Orthodontic
Entity to be repaid upon such terms as agreed to by the Orthodontic Entity and
Premier, which indebtedness shall be deemed a Center Expense for purposes of
Article III hereof; provided, however, that in any event the outstanding
principal amount of such indebtedness shall bear interest at an annual rate
adjusted on the first calendar day of each month to reflect that certain rate
from time to time published by the Wall Street Journal as the prime rate, as of
the last business day of the immediately preceding month for which such prime
rate was published (the "Prime Rate"), plus one percent (1%).
1.13 Records. Premier shall organize and develop systems
in consultation with the Orthodontic Entity with respect to all files and
records relating to the business operations of the Center, including, but not
limited to, accounting, billing and collection records. The parties expressly
acknowledge and agree that patient records shall at all times be and remain the
property and under the control of the Orthodontist and shall be located at the
Orthodontic Entity's facilities so that they are readily accessible for patient
care. The management of all files and records shall comply with applicable state
and federal statutes. Premier shall use its reasonable efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purpose 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.
II. OBLIGATIONS OF THE ORTHODONTIC ENTITY
2.1 General. The Orthodontic Entity will be responsible
for the management of the Center, in accordance with the requirements of the
California Dental Practice Act.
2.2 Employment of Orthodontists and Rendering of Patient
Care. The Orthodontic Entity will be responsible for the employment of all
Orthodontist(s) and hygienists affiliated with the Orthodontic Entity and
supervision of all care and services rendered to patients.
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2.3 Professional Services. The Orthodontic Entity shall
use and occupy the offices and facilities designated on Exhibit 1.2 exclusively
for the practice of orthodontic and general dentistry services and shall comply
with all applicable local rules, ordinances and all standards of dental and
orthodontic care. It is expressly acknowledged by the parties that the
orthodontic practice conducted at the Center shall be conducted solely by the
Orthodontists associated with the Orthodontic Entity except those additional
orthodontists employed by the general dentists' offices from which the
Orthodontic Entity rents only space, and no other orthodontist shall be
permitted to use or occupy the Center or Centers, except as provided in Exhibit
2.3. The Orthodontic Entity shall provide professional services to patients
hereunder in compliance at all times with ethical standards and laws and
regulations applying to the dental profession. The Orthodontic Entity shall
ensure that each Orthodontist providing orthodontic or dental services to
patients is licensed by the state in which the Center is located. In the event
that any disciplinary, medical malpractice or other actions are initiated
against any such Orthodontist, the Orthodontic Entity shall immediately inform
Premier of such action and the underlying facts and circumstances. The
Orthodontic Entity agrees to cooperate with and participate in the quality
assurance/utilization review programs established by Premier or mandated by
accreditation and/or licensure standards applicable to the practice of
orthodontics and dentistry. Deficiencies discovered in the performance of any
personnel or in the quality of professional services shall be reported
immediately to Premier, and appropriate steps shall be taken by the Orthodontic
Entity at once to remedy such deficiencies. Any termination of an Orthodontist
other than for cause (as such term is defined in the Employment Agreement
between the Orthodontic Entity and the Orthodontist) must be approved by a
majority of the Board of Advisors of Premier.
2.4 Records. The Orthodontic Entity will keep or cause to
be kept accurate, complete and timely medical and other records of all patients.
Such records shall be sufficient to enable Premier, on behalf of the Orthodontic
Entity, to obtain payment for the services and facilities and to facilitate the
delivery of quality patient care by the Orthodontist.
2.5 Professional Expenses. Payments expended each fiscal
year by the Orthodontic Entity on behalf of the Orthodontist and other
orthodontists or dentists delivering patient care at the Center(s) for
continuing education, seminars, professional license fees and dues, professional
memberships, expenses related to a company automobile for the Orthodontist, and
all other expenses of the Orthodontist and other orthodontists and dentists
delivering patient care at the Center(s) that do not directly benefit the
Orthodontic Entity (as reasonably determined by Premier), up to the amount of
three percent (3%) of the Orthodontic Entity's Adjusted Gross Revenue, shall be
considered a Center Expense. To the extent that such expenses exceed three
percent (3%) of the Orthodontic Entity's Adjusted Gross Revenue for such year,
the Center Expenses shall be reduced by such excess amount solely for the
purpose of calculating the Consulting Fee; provided, however, that the
Orthodontic Entity shall pay such excess expenses. Notwithstanding the
foregoing, the Orthodontic Entity shall be solely responsible for the cost of
professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by the
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Orthodontist. The Orthodontic Entity shall ensure that the Orthodontist
participates in such continuing education as is necessary for such Orthodontist
to remain current.
2.6 Professional Insurance Eligibility. The Orthodontic
Entity shall cooperate in the obtaining and retaining of professional liability
insurance by assuring that each of its Orthodontists is insurable and
participating in an on-going risk management program.
2.7 Employment Agreement. The parties recognize that the
services to be provided by Premier are feasible only if the Orthodontic Entity
operates an active orthodontic practice to which it and each orthodontist
associated with the Orthodontic Entity devote their full time and attention.
Simultaneously with the execution of this Agreement, each Orthodontist who is or
becomes an equity owner of the Orthodontic Entity or delivers patient care at
the Center(s) on average more than ten (10) days each month, whether on the date
hereof or at any time during the term of this Agreement, shall enter into an
employment agreement with the Orthodontic Entity in substantially the form of
that certain Employment Agreement dated of even date herewith by and between the
Orthodontic Entity and the principal Orthodontist(s) of the Orthodontic Entity.
2.8 Confidentiality. The Orthodontic Entity agrees and
acknowledges that all materials provided by Premier or a Premier Affiliate (as
hereinafter defined) to the Orthodontic Entity, including all trade secrets,
constitute "Confidential Information" and are disclosed in confidence and with
the understanding that it constitutes valuable business information developed by
Premier at great expenditures of time, effort, and money. Trade secrets are
property rights protected by law and, for purposes of this letter, shall have
the meaning provided under applicable California law. The Orthodontic Entity
further agrees that it shall not, directly or indirectly, without the express
prior written consent of Premier, use or disclose such Confidential information
for any purpose other than in connection with the services to be rendered
hereunder. The Orthodontic Entity further agrees: (i) to keep strictly
confidential and hold in trust all Confidential Information and not disclose
such Confidential Information to any third party without the express prior
written consent of Premier; and (ii) to impose this obligation of
confidentiality on its affiliates, co-owners, associates, partners, employees,
shareholders, members and independent contractors. The Orthodontic Entity
acknowledges that the disclosure of Confidential Information to it by Premier is
done in reliance upon its representations and covenants in this Agreement. Upon
expiration or termination of this Agreement by either party for any reason
whatsoever, the Orthodontic Entity shall immediately return and shall cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors to immediately return to Premier all Confidential
Information (only to the extent such Confidential Information does not include
patient information), and the Orthodontic Entity will not, and will cause its
affiliates, co-owners, associates, partners, employees, shareholders, members
and independent contractors not to, thereafter use, appropriate, or reproduce
such Confidential Information. The Orthodontic Entity further expressly
acknowledges and agrees that any such use, appropriation, or reproduction of any
such Confidential Information by any of the foregoing after the expiration or
termination of this Agreement will result in irreparable injury to
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Premier, that the remedy at law for the foregoing would be inadequate, and that
in the event of any such use, appropriation, or reproduction of any such
Confidential Information after the termination or expiration of this Agreement,
Premier, in addition to any other remedies which may be available to it, shall
be entitled to injunctive or other equitable relief. As used in this Agreement,
the term "Premier Affiliate" shall mean (i) each corporation or other business
entity directly or indirectly controlling, controlled by, or under common
control with Premier and (ii) each orthodontic or dental practice to which
Premier provides management or consulting services, the employees and principals
of such practices, and each corporation or other business entity directly or
indirectly controlling, controlled by, or under common control with each such
practice or the principals thereof.
2.9 Covenant Not to Compete. During the term of this
Agreement, the Orthodontic Entity, and any of its members or shareholders,
agrees not to establish, develop or open any offices for the provision of
orthodontic services within a ten (10) mile radius of any of the Centers covered
by this Agreement (the "Area of Dominant Influence") without the express written
consent of Premier. For a period of two (2) years following the termination of
this Agreement, the Orthodontic Entity and any of its members or shareholders
shall be prohibited within the Area of Dominant Influence (i) from advertising
in print (except for yellow page advertising and announcements for the opening
of a practice) or electronic media of any kind, (ii) from soliciting in any
manner patients, orthodontists or staff associated with the Centers, and (iii)
from soliciting any referrals from any dentist who referred one or more patients
to the Center within the three (3) years prior to the date of such termination.
In the event the Orthodontic Entity terminates this Agreement pursuant to
Section 5.2(b), then this Section 2.9 shall be void and of no further effect;
provided, however, the remainder of this Agreement shall remain in full force
and effect.
III. FINANCIAL ARRANGEMENTS
3.1 Consulting Fees. Premier shall receive a Consulting
Fee, subject to the provisions of Section 3.3 below, of between 14% and 17% of
the Adjusted Gross Revenue as determined pursuant to Exhibit 3.1 attached hereto
and incorporated herein by reference.
Except as otherwise provided, the amounts to be paid to
Premier under this Section 3.1 shall be payable monthly. The amounts shall be
estimated based upon the previous month's operating results of the Center.
Adjustments to the estimated payments shall be made to reconcile actual amounts
due under this Section 3.1, by the end of the following month. Upon preparation
of quarterly financial statements, final adjustments to the Consulting Fee for
the quarter shall be made and any additional amounts owing to Premier or the
Orthodontic Entity shall then be made. Any audit adjustments shall be reflected
in the calculations for the fourth quarter.
3.2 Center Expenses. Premier shall be responsible for the
payment of all Center Expenses, as defined below, during the term of this
Agreement and the Orthodontic Entity shall immediately reimburse Premier for
such payments from funds held in the Orthodontic Entity Account.
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3.3 Definitions. For the purposes of this Agreement,
the following definitions shall apply and shall comply with
generally accepted accounting principles:
(a) "Adjusted Gross Revenue" shall mean Gross
Revenue of the Center less any Adjustments, based on the
accrual method of accounting.
(b) "Adjustments" shall mean any adjustments to
Gross Revenue for uncollectible accounts, professional
courtesies and other activities, contractual allowances and
discounts that do not generate a collectible fee.
(c) "Center Expenses" shall mean all operating
and non-operating expenses incurred in the operation of the
Center, including, without limitation:
(i) Salaries, benefits, payroll taxes,
workers compensation, health insurance, 401(k) and
other benefit plans, and other direct costs of all
employees of Premier at the Center, including dental
assistants (but excluding all Orthodontists);
provided that only expenses for health insurance,
401(k) and other benefit plans approved by the
Orthodontic Entity shall be included;
(ii) Direct costs of all employees or
consultants of Premier who, upon mutual agreement of
Premier and the Orthodontic Entity, provide services
at or, if consented to by the Orthodontic Entity, in
connection with the Center required for improved
clinic performance, such as work management,
materials management, purchasing, charge and coding
analysis, and business office consultation;
(iii) Obligations of Premier under leases
or subleases entered into in connection with the
operation of the Center;
(iv) Personal property and intangible
taxes assessed against Premier's assets used in
connection with the operation of the Center,
commencing on the date of this Agreement;
(v) Malpractice insurance expenses and
Orthodontist recruitment expenses as agreed to by
Premier and the Orthodontic Entity;
(vi) Property, casualty and liability
insurance for the Center and its operations;
(vii) In the event an opportunity arises
for additional Orthodontists in the Area of Dominant
Influence to become employed by or merge with the
Orthodontic Entity, actual out-of-pocket expenses of
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Premier personnel working on a specified merger,
whether or not such merger is completed if such
merger is approved or requested by the Orthodontic
Entity;
(viii) Amortization of intangible asset
value as a result of each such acquisition referred
to in subsection (vii) above;
(ix) Depreciation of all assets used by
the Orthodontic Entity in the operation of the
Center;
(x) Repayment of interest on any funds
loaned to the Orthodontic Entity by Premier in
connection with the operation of the Center, at an
interest rate not in excess of the Prime Rate plus
one percent (1%);
(xi) Advertising and other marketing
expenses attributable to the promotion of the Center
and/or its Orthodontist(s); and
(xii) Other expenses incurred by Premier
with the consent of the Orthodontic Entity in
carrying out its obligations under this Agreement for
the benefit of the Center or the Orthodontic Entity;
provided, however, that such expenses shall not
include Premier's home office overhead expenses.
"Center Expenses" shall not include:
(i) Any federal or state income taxes;
or
(ii) Any personal expenses of the
Orthodontist as permitted in the first sentence of
Section 3(b) of that certain employment agreement(s)
by and between the Orthodontist(s) and the
Orthodontic Entity, in excess of three percent (3%)
of the Orthodontic Entity's Adjusted Gross Revenue.
(d) "Contract" shall mean the agreement entered
into by patients with the Orthodontic Entity for the provision
of orthodontic services at a predetermined fee for an
estimated period of treatment.
(e) "Gross Revenue" shall mean all fees and
charges recorded or booked each month by or on behalf of the
Orthodontic Entity as a result of professional orthodontic or
other dental services personally furnished to patients by the
Orthodontist and those under the Orthodontist's supervision
and other fees or income generated in their capacity as a
professional prior to any Adjustments.
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3.4 Additional Facilities. In the event the parties agree
to add an additional facility in which the Orthodontic Entity will provide
services, the consulting fees payable to Premier shall be determined by
aggregating the results of the operations of each additional facility with the
results of the operations of the existing Center or Centers and such fees
payable to Premier shall be calculated pursuant to the provisions of Section
3.1. All other provisions of this Article III shall apply to any additional
facilities. As part of its strategic growth strategy, Premier plans to provide
capital support or arrange favorable funding for orthodontic practice expansion
and development. Any expenditures on practice growth, acquisition or development
shall be subject to approval by Premier's Board of Directors.
IV. INSURANCE AND INDEMNITY
4.1 Insurance to be Maintained by the Orthodontic Entity.
Throughout the term of this Agreement, the Orthodontic Entity shall maintain
comprehensive professional liability insurance with limits of not less than
$500,000 per claim and with aggregate policy limits of not less than $1,000,000
per Orthodontist providing services at the Center and a separate limit for the
Orthodontic Entity or such other amounts required by the applicable state laws,
regulations, rules or directives. The Orthodontic Entity shall be responsible
for all such liabilities in excess of the limits of such policies. Premier
agrees to negotiate for and cause premiums to be paid with respect to such
insurance. Premiums and deductibles with respect to such policies shall be a
Center Expense.
4.2 Insurance to be Maintained by Premier. Throughout the
term of this Agreement, Premier will use reasonable efforts to provide and
maintain, as a Center Expense, comprehensive general liability and property
insurance covering the Center premises and operations.
4.3 Tail Insurance Coverage. The Orthodontic Entity will
cause each individual Orthodontist providing services at the Center to enter
into an agreement with the Orthodontic Entity that upon termination of such
Orthodontic Entity's relationship with the Orthodontist, for any reason, tail
insurance coverage for a period of three (3) years will be purchased by each
Orthodontist. Such provisions may be contained in employment agreements,
restrictive covenant agreements or other agreements entered into by the
Orthodontic Entity and the individual Orthodontists, and the Orthodontic Entity
hereby covenants with Premier to enforce such provisions relating to the tail
insurance coverage or to provide such coverage at the expense of the Orthodontic
Entity.
4.4 Additional Insureds. The Orthodontic Entity shall
have Premier named as an additional insured on the Orthodontic Entity's
professional liability insurance programs.
4.5 Indemnification. The Orthodontic Entity shall
indemnify, hold harmless and defend Premier, its officers, directors,
shareholders, members and employees, from and against any and all liabilities,
losses, damages, claims, causes of action, and expenses
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(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 medical, dental or orthodontic services or the
performance of any intentional acts, negligent acts or omissions by the
Orthodontic Entity and/or its affiliates, shareholders, members, agents,
employees and/or subcontractors (other than Premier) prior to and after the date
of this Agreement and throughout the term hereof. Premier shall indemnify, hold
harmless and defend the Orthodontic Entity, and its directors, shareholders,
members and employees, from and against any and all liabilities, losses,
damages, claims, 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 Premier, a Premier Affiliate and/or their members, shareholders, agents,
employees and/or subcontractors (other than the Orthodontic Entity) during the
term of this Agreement.
V. TERM AND TERMINATION
5.1 Term of Agreement. This Agreement shall commence on
the date the Securities and Exchange Commission declares effective Premier's
registration Statement on Form S-1 for the sale of Premier's common stock or
membership interests in an initial public offering (the "IPO") and shall expire
on the twentieth (20th) anniversary thereof unless earlier terminated pursuant
to the terms hereof. In the event that Premier does not complete the IPO on or
before October 15, 1997, this Agreement shall be null and void and of no further
effect between the parties hereto.
5.2 Termination by the Orthodontic Entity. The
Orthodontic Entity may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by Premier, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by Premier, except for the filing of a
petition in involuntary bankruptcy against Premier which is dismissed within
thirty (30) days thereafter, the Orthodontic Entity may give written notice of
the immediate termination of this Agreement.
(b) In the event Premier shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of ninety (90) days after written notice
thereof has been given to Premier by the Orthodontic Entity (which notice shall
contain specific details of the reason for such default), the Orthodontic Entity
may terminate this Agreement; provided, however, if the nature of such default
is such that cure is not capable within said 90-day period, then Premier shall
have such additional time as may be required to effect and complete such cure
provided that Premier shall commence such cure within the aforesaid 90-day
period and shall prosecute such cure to completion with reasonable diligence.
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(c) In the event that the IPO has not been completed on
or before October 15, 1997, the Orthodontic Entity may terminate this Agreement.
5.3 Termination by Premier. Premier may terminate this
Agreement as follows:
(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by the Orthodontic
Entity, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the Orthodontic
Entity, except for the filing of an involuntary petition in bankruptcy against
the Orthodontic Entity which is dismissed within thirty (30) days thereafter,
Premier may give written notice of the immediate termination of this Agreement.
(b) In the event the Orthodontic Entity shall materially
default in the performance of any duty or obligation imposed upon it by this
Agreement, and such default shall continue for a period of ninety (90) days
after written notice thereof has been given to the Orthodontic Entity by
Premier, Premier may terminate this Agreement.
(c) In the event that the IPO has not been completed on
or before October 15, 1997, Premier may terminate this Agreement.
5.4 Actions after Termination. Upon termination of this
Agreement by either party for any reason other than a default by the Orthodontic
Entity or upon expiration of this Agreement, the Orthodontic Entity may, and
upon termination of this Agreement by Premier due to the reasons set forth in
Section 5.3(b) hereof, the Orthodontic Entity shall:
(a) Purchase all improvements, additions or leasehold
improvements which have been made by Premier and which relate solely to the
performance of its obligations under this Agreement at adjusted book value;
(b) Assume all debt and all contracts, payables and
leases which are obligations of Premier and which relate solely to the
performance of its obligations under this Agreement or the properties subleased
by Premier; and
(c) Purchase from Premier at book value all of the
equipment of the Center, including all replacements and additions thereto made
by Premier pursuant to the performance of its obligations under this Agreement,
and all other assets, including inventory and supplies, tangibles and
intangibles (including but not limited to accounts receivable), set forth on the
balance sheet prepared for the month most recently ended prior to the date of
such termination in accordance with GAAP to reflect operations of the Center,
depreciation, amortization and other adjustments of assets shown on such balance
sheet.
5.5 Closing of Repurchase by the Orthodontic Entity and
Effective Date of Termination. Unless another form of payment is agreed to by
Premier at such time, the
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Orthodontic Entity shall pay cash to Premier for the assets repurchased pursuant
to Section 5.4; provided, however, that such cash payments for such portion of
contracts receivable for services determined in accordance with GAAP to
constitute accounts receivable shall be made as such accounts receivables are
actually collected by the Orthodontic Entity; provided, further, that the
Orthodontic Entity shall in any event pay in cash to Premier the amount of
accounts receivable not collected by the Orthodontic Entity within ninety (90)
days of termination that are not deemed uncollectible accounts. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
Premier assumed by the Orthodontic Entity and shall also be reduced by any
payment Premier has failed to make under this Agreement. The Orthodontic Entity
and any Orthodontist associated with the Orthodontic Entity shall execute such
documents as may be required to assume the liabilities set forth in Section
5.4(c) and shall use its best efforts to remove Premier from any liability with
respect to such repurchased assets and with respect to any property leased or
subleased by Premier. The closing date for the repurchase shall be determined by
the Orthodontic Entity, but shall in no event occur later than 180 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the Orthodontic
Entity and Premier shall be released from the restrictive covenants provided for
in Section 2.9 on the closing date. From and after any termination, each party
shall provide the other party with reasonable access to books and records then
owned by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
5.6 Patient Records. Upon termination of this Agreement,
the Orthodontic Entity shall retain all patient medical records maintained by
the Orthodontic Entity or Premier in the name of the Orthodontic Entity. During
the term of this Agreement, and thereafter, the Orthodontic Entity or its
designee shall have reasonable access during normal business hours to the
Orthodontic Entity's and Premier's records, including, but not limited to,
records of collections, expenses and disbursements as kept by Premier in
performing Premier's obligations under this Agreement, and the Orthodontic
Entity may copy any or all such records.
VI. INDEPENDENT CONTRACTOR
6.1 Orthodontic Entity's Control Over the Orthodontic
Practice. Notwithstanding the authority granted to Premier herein, Premier and
the Orthodontic Entity agree that the affiliated Orthodontist, personally or
through any of his professional employees or agents, shall have complete control
and supervision over the business aspects of the Orthodontic Entity's practice,
as well as the provision of all professional services, including, without
limitation, the selection of a course of treatment for a patient, the procedures
or materials to be used as a part of such course of treatment, and the manner in
which such course of treatment is carried out by the Orthodontist(s). The
Orthodontist(s) shall have sole authority to direct the business, professional,
and ethical aspects of the orthodontic practice. Premier will have no authority,
directly or indirectly, to perform, and will not perform, any orthodontic
function, or to influence or otherwise interfere with the exercise of the
Orthodontist(s) professional judgment. Premier may, however, advise the
Orthodontic Entity
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as to the relationship between its performance of orthodontic functions and the
overall administrative and business functions of its practice.
6.2 Independent Relationship. The Orthodontic Entity and
Premier intend to act and perform as independent contractors, and the provisions
hereof are not intended to create any partnership, joint venture, agency or
employment relationship between the parties. The Orthodontic Entity will not
have any claim under this Agreement, or otherwise, against Premier for vacation
pay, sick leave, unemployment insurance, worker's compensation, disability
benefits or employee benefits of any kind.
6.3 Other Professionals. No provision of this Agreement
is intended to limit Premier's right, authority, or ability under applicable law
to contract with other dentists or physicians, or to employ, contract with, or
enter into any partnership or joint venture with any healthcare professional,
provided that the exercise of such right, authority or ability does not
contravene the terms of this Agreement.
6.4 Patient Care. Nothing in this Agreement is intended
to interfere, or shall be construed as interfering, in any way with the
Orthodontist(s)'s ability to independently exercise professional and ethical
judgment in the performance of his patient care responsibilities.
VII. GENERAL PROVISIONS
7.1 Assignment. This Agreement shall be assignable by
Premier to (i) any person, firm or corporation that controls or is under common
control with Premier, (ii) US Orthodontic Care, Inc. ("USOC") or any person,
firm or corporation that controls or is under common control with USOC, or (iii)
any entity that results from a merger or other combination between Premier and
USOC ("Newco") and any person, firm or corporation that controls or is under
common control with Newco. Except as set forth above, neither Premier nor the
Orthodontic Entity shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party, which
consent shall not be unreasonably withheld. Subject to this provision, this
Agreement shall be binding upon the parties hereto, and their successors and
assigns.
7.2 Whole Agreement; Modification. There are no other
agreements or understandings, written or oral, between the parties regarding
this Agreement, the Exhibits and the Schedules, other than as set forth herein.
This Agreement shall not be modified or amended except by a written document
executed by both parties to this Agreement, and such written modification(s)
shall be attached hereto.
7.3 Notices. All notices required or permitted by
this Agreement shall be in writing and shall be addressed as follows:
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To Premier: Premier Orthodontic Group, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇ ▇▇▇▇▇▇▇▇, Chief Executive
Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ &
Scarborough, L.L.P.
First Union Plaza, Suite 1400
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
To the
------------------------------------
Orthodontic Entity:
------------------------------------
------------------------------------
------------------------------------
or to such other address as either party shall notify the other.
7.4 Waiver of Provisions. Any waiver of any terms and
conditions hereof must be in writing, and signed by the parties hereto. The
waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.
7.5 Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of California. The parties acknowledge that Premier
is not authorized or qualified to engage in any activity which may be construed
or deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of Premier in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
Premier shall be deemed waived and forever unenforceable and the provision of
Section 7.12 shall be applicable.
7.6 Events Excusing Performance. Neither party shall be
liable to the other party for failure to perform any of the services required
herein in the event of strikes, lock-outs, calamities, acts of God,
unavailability of supplies or other events over which that party has no control
for so long as such events continue, and for a reasonable period of time
thereafter.
7.7 Compliance with Applicable Laws. Both parties shall
comply with all applicable federal, state and local laws, regulations and
restrictions in the conduct of their obligations under this Agreement.
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7.8 Severability. In the event that any provision of this
Agreement or the application thereof to any of the parties hereto or any
circumstance in any jurisdiction governing this Agreement shall, to any extent,
be invalid or unenforceable under any applicable statute, regulation or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict herewith and shall be deemed modified to conform to such statute,
regulation or rule of law, and the remainder of this Agreement and the
application of any such invalid or unenforceable provision to parties,
jurisdictions or circumstances other than to whom or to which it is held invalid
or unenforceable shall not be affected thereby nor shall the same affect the
validity or enforceability of any other provision of this Agreement.
7.9 Additional Documents. Each of the parties hereto
agrees to execute any document or documents that may be requested from time to
time by the other party to implement or complete such party's obligations
pursuant to this Agreement.
7.10 Attorneys' Fees. If legal action is commenced by
either party to enforce or defend its rights under this Agreement, the
prevailing party in such action shall be entitled to recover its costs and
reasonable attorneys' fees in addition to any other relief granted.
7.11 Confidentiality. Neither party hereto shall
disseminate or release to any third party any information regarding any
provision of this Agreement, or any financial information regarding the other
(past, present or future) that was obtained by the other in the course of the
negotiation of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which is required to be disclosed by
law, including federal or state securities laws, or pursuant to court order.
7.12 Contract Modifications for Prospective Legal Events.
In the event any state or federal laws or regulations, now existing or enacted
or promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, the Orthodontic Entity and Premier shall amend this
Agreement as necessary. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements between the
Orthodontic Entity and Premier.
7.13 Remedies Cumulative. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
7.14 Language Construction. The language in all parts of
this Agreement shall be construed, in all cases, according to the parties'
intent and the parties hereto acknowledge that each party and its counsel have
reviewed and revised this Agreement and that
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the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
7.15 No Obligation to Third Parties. None of the
obligations and duties of Premier or the Orthodontic Entity under this Agreement
shall in any way or in any manner be deemed to create any obligation of Premier
or of the Orthodontic Entity to, or any rights in, any person or entity not a
party to this Agreement.
7.16 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same Agreement.
7.17 Singular and Plural; Gender. Where the context so
requires or permits, the use of the singular form includes the plural, and the
use of the plural form includes the singular, and the use of any gender includes
any and all genders.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ORTHODONTIC ENTITY:
------------------------------------------
By:
Name
Title:
PREMIER:
PREMIER ORTHODONTIC GROUP, INC.
By:
Name:
Title:
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EXHIBIT 3.1
CONSULTING FEE
Premier shall receive a monthly Consulting Fee of between 14%
and 17% of Adjusted Gross Revenue based on the profitability of the Orthodontic
Entity as follows:
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Office Profit Total Total % Profit % Profit
Overhead % Margin % % to DR % to to DR to Premier
Premier
-----------------------------------------------------------------------------------------------------------------------------------
64% 36% 22.00% 14.00% 61.11% 38.89%
-----------------------------------------------------------------------------------------------------------------------------------
62% 38% 23.75% 14.25% 62.50% 37.50%
-----------------------------------------------------------------------------------------------------------------------------------
60% 40% 25.50% 14.50% 63.75% 36.25%
-----------------------------------------------------------------------------------------------------------------------------------
58% 42% 27.25% 14.75% 64.88% 35.12%
-----------------------------------------------------------------------------------------------------------------------------------
56% 44% 29.00% 15.00% 65.91% 34.09%
-----------------------------------------------------------------------------------------------------------------------------------
54% 46% 30.75% 15.25% 66.85% 33.15%
-----------------------------------------------------------------------------------------------------------------------------------
52% 48% 32.50% 15.50% 67.71% 32.29%
-----------------------------------------------------------------------------------------------------------------------------------
50% 50% 34.25% 15.75% 68.50% 31.50%
-----------------------------------------------------------------------------------------------------------------------------------
48% 52% 36.00% 16.00% 69.23% 30.77%
-----------------------------------------------------------------------------------------------------------------------------------
46% 54% 37.75% 16.25% 69.91% 30.09%
-----------------------------------------------------------------------------------------------------------------------------------
44% 56% 39.50% 16.50% 70.54% 29.46%
-----------------------------------------------------------------------------------------------------------------------------------
42% 58% 41.25% 16.75% 71.12% 28.88%
-----------------------------------------------------------------------------------------------------------------------------------
40% 60% 43.00% 17.00% 71.67% 28.33%
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===================================================================================================================================
Such Consulting Fee shall be adjusted annually at the beginning of each calendar
year; provided, however, that during the term of this Agreement, such Consulting
Fee percentage shall not be less than the initial Consulting Fee percentage
charged during the first year of the term of this Agreement.
Example
If the Orthodontic Entity grossed $100,000 (net of adjustments) in the first
month and the Profit Margin in 1996 was 50%, then the Consulting Fee for the
first month will be set at $100,000 * 15.75%, or $15,750. If during the next
month, the practice increased its Adjusted Gross Revenue to $110,000, the
Consulting Fee for the month would be $110,000 * 15.75%, or $17,325. All profit
percentages will be rounded up to the nearest category.
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