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EXHIBIT 10.1
AMENDED AND RESTATED
FORM OF
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (this "Agreement"), dated as of _______________,
________, by and between US ORTHODONTIC CARE, INC., a Georgia corporation, and
its successors and assigns ("USOC"), and _________________________, a
________________ (the "Orthodontic Entity").
RECITALS:
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 (the
"Orthodontist(s)"); and
WHEREAS, USOC is a company which has been formed to own the assets of,
provide personnel and practice management to, and manage the business affairs of
orthodontic practices;
WHEREAS, USOC's services are designed to improve the efficiency and
profitability of orthodontic practices while enhancing the ability of the
orthodontists in such practices to render quality orthodontic care to their
patients;
WHEREAS, the Orthodontic Entity and USOC mutually desire to enter into
a business relationship under the terms of this Agreement to help the
Orthodontic Entity achieve the above goals.
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
I. RESPONSIBILITIES AND OBLIGATIONS OF USOC
1.1. General. USOC shall provide the Orthodontic Entity with
comprehensive practice management, financial and marketing services, and such
facilities, equipment, and support personnel as reasonably required by the
Orthodontic Entity to operate its practice, as determined by USOC in
consultation with the Orthodontist. The Orthodontic Entity hereby appoints USOC
as the sole and exclusive business manager of the Center and agrees that USOC
shall have all power and authority reasonably necessary to manage the business
affairs of the Center and carry out USOC's duties under this Agreement, subject
to the requirements
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of the applicable provisions of ______________ law relating to the practice of
dentistry. Notwithstanding anything contained herein to the contrary, the
Orthodontic Entity (or the Orthodontist as appropriate) shall retain control
over all aspects of and decisions directly affecting the course of treatment of
any patients of the Orthodontic Entity.
1.2. Facilities and Equipment. The parties expressly agree that all
office space and facilities provided by USOC to the Orthodontic Entity hereunder
shall be leased or provided to the Orthodontic Entity by USOC at the rental
amount incurred by USOC under a lease or other agreement or arrangement under
which the Orthodontic Entity shall maintain complete care, custody, and control
of the foregoing. Subject to the foregoing, USOC agrees to provide or arrange
for on behalf of the Orthodontic Entity the offices, facilities, furnishings,
equipment, and related services described in Exhibit 1.2 hereto, as such Exhibit
may be amended from time to time, and, on an ongoing basis, shall provide for
the maintenance and upkeep of the foregoing as a Center Expense (as hereinafter
defined); provided, however that the Orthodontic Entity shall maintain complete
control over and shall make all decisions directly affecting the complete care,
custody and control over all dental equipment. USOC additionally agrees, on an
ongoing basis, to evaluate and consult with the Orthodontic Entity on the
equipment needs of and the efficiency and adequacy of the facilities utilized by
the Center. Unless the Orthodontic Entity chooses to directly purchase
furnishings, equipment and related assets in the future, USOC 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 USOC. If the Orthodontic Entity chooses to purchase such assets, then
it shall depreciate such assets in accordance with generally accepted accounting
principles ("GAAP").
1.3. Personnel and Payroll. USOC shall employ all of the Center's
staff, except the Orthodontists, as determined by the Orthodontic Entity in
consultation with USOC, to be required for the operation of the Center.
Additionally, USOC shall be responsible for the performance of all payroll and
payroll accounting functions.
1.4. Business Systems, Procedures and Forms. In consultation with the
Orthodontic Entity, USOC shall establish business systems and procedures for the
Center developed by USOC that are designed to improve the Center's operating
efficiency. USOC shall provide training to the Center's staff in the
implementation and operation of such business systems and procedures. USOC shall
additionally provide the Orthodontic Entity with and train the Center's staff in
the use of clinical forms, including, without limitation, forms for patient
evaluations and treatment plans. The Orthodontic Entity expressly acknowledges
and agrees that it shall have no property rights in the foregoing systems,
procedures and clinical forms, and further agrees that such systems, procedures,
and forms shall be deemed to constitute Confidential Information within the
meaning of Section 2.7 hereof and subject to the restrictions on the use,
appropriation, and reproduction of such Confidential Information provided for in
Section 2.7.
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1.5. Purchasing, Accounts Payable and Inventory Control. In
consultation with the Orthodontic Entity, USOC shall purchase and maintain as a
Center Expense all inventory and supplies required by the Center. The price
charged to the Center for such inventory and supplies shall be the same as the
price paid by USOC, including any rebates. In any event, the Orthodontic Entity
has the right to purchase its supplies from the supplier of its choice. USOC
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the Center.
1.6. Information Systems and Accounting. USOC shall establish,
maintain and train the Center's staff in the use of information systems to
produce financial and operational information concerning the Center's
operations. USOC shall analyze such information on an ongoing basis in order to
advise the Orthodontic Entity on ways of improving operating efficiencies.
USOC shall provide or arrange for all accounting and bookkeeping services
related to the Center's operations, provided that such services are incurred in
the ordinary course of business.
1.7. Legal Services. USOC shall arrange for all legal services
reasonably required by the Center, excluding the costs of malpractice litigation
which shall be the sole responsibility of the Orthodontist. USOC shall use
reasonable efforts to obtain under its blanket policies for the Orthodontist as
a Center Expense malpractice insurance that meets the coverage requirements set
forth in Section 4.1 hereof.
1.8. Marketing. The parties expressly acknowledge and agree that the
Orthodontic Entity shall exercise control over all policies and decisions
relating to pricing, credit, refunds, warranties and advertising. Subject to the
foregoing, USOC shall design and execute a marketing plan to promote the
Orthodontist's professional services. In connection with such marketing plan,
USOC shall advise the affiliated Orthodontist on establishing and maintaining a
plan for patients' payment for orthodontic services on an installment plan
basis. All marketing activities hereunder shall be conducted in compliance with
all applicable laws and regulations governing advertising by the dental
profession.
1.9. Planning. USOC will assess and advise the Orthodontic Entity on
the establishment of orthodontic offices in new locations and, subject to mutual
agreement, will provide assistance to the Orthodontic Entity in the opening of
such new offices, including assistance in the location of such offices and in
the sale of existing practices, as appropriate.
1.10. Financial Services. On a continuous basis, the accounts
receivable of the Orthodontic Entity shall be deposited with USOC for the
Orthodontic Entity's account, and USOC shall use the funds collected from such
accounts receivable to pay the Service Fee (as hereinafter set forth) and the
expenses of the Orthodontic Entity, including the Center Expenses and shall
return to the Orthodontic Entity any funds remaining after payment in full of
such items. USOC shall be responsible for (i) billing and collecting payments
for all
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orthodontic services rendered by the Orthodontist to his patients and for all
other professional and Center services, with all such billing and collecting to
be done in the name of the Orthodontic Entity; (ii) receiving payments from
patients, insurance companies and all other third party payors; (iii) taking
possession of and endorsing in the name of the Orthodontic Entity any notes,
checks, money orders, insurance payments and other instruments received in
payment of accounts receivable; (iv) administering the Orthodontic Entity's
payroll as applicable; (v) preparing and submitting to the Orthodontist monthly
operating data and quarterly financial reports with respect to the operation of
the Center; and (vii) paying all Center Expenses, as set forth in Section 3. No
funds from the Medicare or Medicaid programs shall be billed or collected by the
Orthodontic Entity or by USOC on the Orthodontic Entity's behalf, provided,
however, that all such funds collected shall be immediately deposited into the
Orthodontic Entity Account (as hereinafter defined) upon receipt thereof. The
Orthodontic Entity and the Orthodontist hereby appoint USOC for the term of this
Agreement to be their true and lawful attorney-in-fact for the purposes set
forth above in this Section.
1.11. Disbursement of Funds. (a) All monies collected for the
Orthodontic Entity by USOC 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 USOC shall
make all disbursements therefrom. USOC shall account for all monies so disbursed
from the Orthodontic Entity Account. From the funds collected and deposited each
month by USOC in the Orthodontic Entity Account, USOC shall make the following
disbursements, among others, promptly when payable:
(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 sums otherwise due and payable by the Orthodontic
Entity as Center Expenses, as defined in Article III hereof, as well as
fees payable to USOC pursuant to Article III hereof.
(b) In the event the funds in the Orthodontic Entity Account will, at
any time, be insufficient to cover current expenses, USOC shall notify the
Orthodontic Entity and USOC 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 USOC, 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%).
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1.12. Records. USOC shall supervise, manage, organize and develop
systems with respect to all files and records relating to the operation of the
Center, including but not limited to accounting, billing, patient records, and
collection records. Patient records shall at all times be and remain the
property 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. USOC 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. Employment of Orthodontists and Rendering of Patient Care. The
Orthodontic Entity shall be responsible for the employment and professional
supervision of all Orthodontist(s) affiliated with the Orthodontic Entity and
all orthodontic care rendered to patients shall be rendered by such
Orthodontist(s). Additionally, the Orthodontist shall be responsible for the
direct professional supervision of all hygienists and technicians in their
rendering of patient care.
2.2. 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, except as provided in Exhibit 2.2. 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 USOC of such
action and the underlying facts and circumstances. The Orthodontic Entity agrees
to cooperate with and participate in quality assurance/utilization review
programs established by USOC 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 USOC, 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 USOC.
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2.3. 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 USOC, on behalf of the Orthodontic Entity,
to obtain payment for the services provided by the Orthodontist.
2.4. 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 determined
by the auditors for USOC), 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
Service Fee (as defined in the Service Agreement); 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
Orthodontist. The Orthodontic Entity shall ensure that the Orthodontist
participates in such continuing education as is necessary for such Orthodontist
to remain current.
2.5. 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.
2.6. Employment Agreement. The parties recognize that the services to
be provided by USOC 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.
2.7. Confidentiality. The Orthodontic Entity agrees and acknowledges
that all materials provided by USOC or a USOC 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 USOC 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
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provided under applicable ________________ law. The Orthodontic Entity further
agrees that it shall not, directly or indirectly, without the express prior
written consent of USOC, 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
USOC; 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 USOC 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 USOC 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 USOC, 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, USOC, 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 "USOC Affiliate" shall
mean (i) each corporation or other business entity directly or indirectly
controlling, controlled by, or under common control with USOC and (ii) each
orthodontic or dental practice to which USOC 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.
2.8. Leases. The Orthodontic Entity agrees to sublease from USOC the
Center or Centers leased by USOC at which the Orthodontic Entity is practicing
pursuant to the form of Center Sublease Agreement attached hereto as Exhibit
2.8. All such Center Sublease Agreements shall include a provision whereby the
parties agree that the Orthodontic Entity maintains complete care, custody and
control over such office space. The lease expenses incurred by Orthodontic
Entity in connection with the Center Sublease Agreement will be deemed "Center
Expenses" for purposes of Article III of this Agreement.
2.9. Covenant Not to Compete. During the term of this Agreement, the
Orthodontic Entity, and any of its 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
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written consent of USOC. For a period of two (2) years following the termination
of this Agreement, the Orthodontic Entity and any of its 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. Service Fees. USOC shall receive an annual Service Fee, subject to
the provisions of Section 3.3 below, of 17% of the Adjusted Gross Revenue (based
on accrual method of accounting). Except as otherwise provided, the amounts to
be paid to USOC under this Section 3.1 shall be payable monthly. The amounts
shall be paid based upon the previous month's operating results of the Center.
Upon preparation of quarterly financial statements, final adjustments to the
Service Fee for the quarter, if any are required, shall be made and any
additional amounts owing to USOC or the Orthodontic Entity shall then be made.
Any audit adjustments shall be reflected in the calculations for the fourth
quarter. The Orthodontic Entity hereby agrees that in addition to the Service
Fee, the Orthodontic Entity shall pay to USOC 25% of the reduction, if any, of
the Center's annual overhead percentage as compared to the immediately preceding
year as reasonably determined by USOC multiplied by the current year's Adjusted
Gross Revenue. Such additional fee shall be paid as of the end of each fiscal
year of the Orthodontic Entity during the term hereof. See Exhibit 3.1 for an
example of the calculation of the additional fee.
3.2. Center Expenses. USOC 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 USOC for such payments from funds
held in the Orthodontic Entity Account.
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.
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(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 USOC 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 USOC
who, upon mutual agreement of USOC 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 USOC under leases or subleases entered
into in connection with the operation of the Center;
(iv) Personal property and intangible taxes assessed against
USOC'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 mutual agreement of USOC 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 USOC 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;
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(x) Repayment of any interest on funds loaned to the
Orthodontic Entity by USOC 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 USOC 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 USOC'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.
3.4. Additional Facilities. In the event the parties agree to add an
additional facility in which the Orthodontic Entity will provide services, the
service fees payable to USOC 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 USOC 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, USOC 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 USOC's Board
of Directors.
3.5. Reasonable Efforts. USOC shall use reasonable efforts to perform
the services contemplated by this Agreement.
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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 as required by applicable ________________ laws,
regulations, rules or directives. The Orthodontic Entity shall be responsible
for all such liabilities in excess of the limits of such policies. USOC 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 USOC. Throughout the term of this
Agreement, USOC 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 USOC
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 USOC 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 USOC, its officers, directors, shareholders, members, and
employees, from and against any and all liabilities, losses, damages, claims,
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 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 USOC) prior to and
after the date of this Agreement and throughout the term hereof. USOC 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
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omissions by USOC, a USOC Affiliate and/or their 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 USOC's registration
Statement on Form S-1 for the sale of USOC's common stock 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 USOC 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 USOC, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by USOC, except for the filing of a petition in
involuntary bankruptcy against USOC 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 USOC 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 USOC 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 USOC shall have such
additional time as may be required to effect and complete such cure provided
that USOC shall commence such cure within the aforesaid 90-day period and shall
prosecute such cure to completion with reasonable diligence.
(c) In the event that the IPO has not been completed on or before
October 15, 1997, the Orthodontic Entity may terminate this Agreement.
(d) In the event that a "Change in Control" (as herein defined) occurs
with respect to USOC, the Orthodontic Entity may, within 10 days after the
expiration of the Approval Period (as herein defined), terminate this Agreement
by providing five (5) days prior written notice to USOC. For purposes of this
Section, "Change in Control" means an acquisition or aggregation of any voting
securities of USOC by a "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) immediately after which such person is or
becomes the beneficial owner, directly or indirectly, of 15% or more of the
combined voting power of USOC's then outstanding voting securities; provided,
however, that no acquisition
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or aggregation of USOC's voting securities shall be deemed a "Change in Control"
if such acquisition or aggregation (i) has the prior approval of USOC's board of
directors, or (ii) is approved by USOC's board of directors within 60 days after
USOC receives notice of such acquisition or aggregation (the "Approval Period").
5.3. Termination by USOC. USOC 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 a petition in involuntary bankruptcy against the Orthodontic
Entity which is dismissed within thirty (30) days thereafter, USOC 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 USOC, USOC may
terminate this Agreement.
(c) In the event that the IPO has not been completed on or before
October 15, 1997, USOC 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 USOC 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 USOC 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 USOC and which relate solely to the performance of its
obligations under this Agreement or the properties subleased by USOC; and
(c) Purchase from USOC at book value all of the equipment of the
Center, including all replacements and additions thereto made by USOC 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.
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5.5. Closing of Repurchase by the Orthodontic Entity and Effective Date
of Termination. Unless another form of payment is agreed to by USOC at such
time, the Orthodontic Entity shall pay cash to USOC for (i) the assets
repurchased pursuant to Section 5.4 and (ii) an amount equal to the Service Fee
that would have been payable hereunder for services rendered to patients by the
Orthodontic Entity prior to the termination of this Agreement; provided,
however, that such cash Service Fee payment shall only be made as payment for
such services as are actually collected by the Orthodontic Entity. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
USOC assumed by the Orthodontic Entity and shall also be reduced by any payment
USOC 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 USOC from any liability with respect to
such repurchased assets and with respect to any property leased or subleased by
USOC. 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 USOC
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 USOC 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 USOC's records, including, but not limited to, records of
collections, expenses and disbursements as kept by USOC in performing USOC'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 Professional Services.
Notwithstanding the authority granted to USOC herein, USOC and the Orthodontic
Entity agree that the affiliated Orthodontist, personally or through any of his
professional employees or agents, shall have control or supervision over the
provision of all professional services, with the sole authority to direct the
professional, and ethical aspects of his orthodontic practice. USOC will have no
authority, directly or indirectly, to perform, and will not perform, any
orthodontic function. USOC may, however, advise the Orthodontic Entity 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 USOC intend
to act and perform as independent contractors, and the provisions hereof are not
intended to create any
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partnership, joint venture, agency or employment relationship between the
parties. The Orthodontic Entity will not have any claim under this Agreement, or
otherwise, against USOC 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 USOC'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 USOC to (i) any
person, firm or corporation that controls or is under common control with USOC,
(ii) Premier Orthodontic Group, Inc. ("Premier") or any person, firm or
corporation that controls or is under common control with Premier, 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 USOC 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:
To USOC: US Orthodontic Care, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
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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 ______________. The parties acknowledge that USOC 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 USOC 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 USOC 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.
7.8. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
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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 USOC 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 USOC.
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 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 USOC or the Orthodontic Entity under this Agreement shall in any way
or in any manner be deemed to create any obligation of USOC 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.
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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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ORTHODONTIC ENTITY:
ARROWHEAD ORTHODONTIC ASSOCIATES, P.C.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
USOC:
US ORTHODONTIC CARE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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EXHIBIT 3.1
ADDITIONAL FEE CALCULATION
If the Center's Adjusted Gross Revenue for Year 1 is $1,000,000 and the Center's
annual overhead for Year 1 is $500,000 and the Center's Adjusted Gross Revenue
for Year 2 is $1,200,000 and the Center's annual overhead for Year 2 is
$552,000, then the additional fee required by Section 3.1 shall be calculated as
follows:
Year 1 overhead percentage: $500,000/$1,000,000 = 50%
Year 2 overhead percentage: $552,000/$1,200,000 = 46%
Reduction in Center's office overhead percentage: 50% - 46% = 4%
4% * $1,200,000 = $48,000
$48,000 * 25% fee = $12,000 additional fee
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SCHEDULE 10.1
OrthAlliance has succeeded to the rights to agreements substantially
identical to Exhibit 10.1 as follows:
1. Service Agreement with ▇▇▇▇▇ ▇. Caves, D.M.D., P.C.
2. Service Agreement with ▇▇▇▇▇▇▇▇ Orthodontic Care, P.C.
3. Service Agreement with Kentucky Center for Orthodontics,
P.S.C.
4. Service Agreement with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ D.D.S. Professional
Corporation.
5. Service Agreement with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇,
D.D.S., P.A.
6. Service Agreement with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S., M.S.,
Professional Corporation.
7. Service Agreement with ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., D.D.S., P.A.
8. Service Agreement with Arrowhead Orthodontic Associates, P.C.
9. Service Agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., D.D.S. P.A.
10. Service Agreement with Orthodontic Associates of the Delaware
Valley, P.C.
11. Service Agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇, D.D.S., P.A.
12. Service Agreement with ▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S., M.S.D., Inc.
13. Service Agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S., M.S., P.C.
14. Service Agreement with ▇▇▇▇ ▇▇▇▇▇▇▇▇, D.D.S., Inc.
15. Service Agreement with ▇▇▇▇▇▇▇▇ Dentistry, P.C.
16. Service Agreement with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.M.D., P.A.
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17. Service Agreement with ▇.▇. ▇▇▇▇▇▇▇, D.M.D., M.S.D., P.C.
18. Service Agreement with Columbus Orthodontic Associates, P.C.
19. Service Agreement with ▇▇▇▇▇ Orthodontics, P.C.
20. Service Agreement with Birmingham OrthoCare, P.C.
21. Service Agreement with ▇▇▇▇▇▇▇ Orthodontic Care, P.C.
22. Service Agreement with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, D.M.D., P.A.
23. Service Agreement with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, D.D.S., P.A.
24. Service Agreement with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, D.D.S., P.C.
25. Service Agreement with ▇▇▇▇▇▇▇ Orthodontic Center, P.A.
26. Service Agreement with ▇▇▇▇▇▇▇ Holdings, Ltd.
27. Service Agreement with ▇.▇. ▇▇▇▇▇▇▇▇, D.D.S., P.L.L.C. A
material detail in which this agreement differs from Exhibit
10.1 is that the Service Fee paid by ▇.▇. ▇▇▇▇▇▇▇▇, D.D.S.,
P.L.L.C. is 13.5%.