EXHIBIT 10(R)
SERVICE AGREEMENT
BETWEEN
PDHC, INC.
and
PDG, P.A.
November 12, 1996
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS............................................................................. 1
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ARTICLE II. APPOINTMENT AND AUTHORITY OF SERVICE COMPANY............................................ 1
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(S)2.1 Appointment............................................................................. 1
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(S)2.2 Authority............................................................................... 2
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(S)2.3 Patient Referrals....................................................................... 2
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(S)2.4 Internal Management of Provider......................................................... 2
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(S)2.5 Practice of Dentistry................................................................... 2
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ARTICLE III. POLICY BOARD............................................................................ 2
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(S)3.1 Formation and Operation of Policy Board................................................. 3
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(S)3.2 Responsibilities of the Policy Board. .................................................. 3
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(a) Capital Improvements and Expansion... ............................................ 3
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(b) Budgeting......................................................................... 3
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(i) Annual Budgets........................................................... 3
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(ii) Effect of Certain Changes................................................ 4
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(iii) Variances................................................................ 4
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(c) Marketing and Advertising......................................................... 4
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(d) Patient Fees; Collection Policies................................................. 4
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(e) Provider and Payor Relationships.................................................. 4
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(f) Strategic and Operational Planning................................................ 4
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(g) Capital Expenditures.............................................................. 4
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(h) Personnel Planning................................................................ 4
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(i) Grievance Referrals............................................................... 5
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(j) Patient Concerns and Claims....................................................... 5
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(k) Environmental Health and Safety................................................... 5
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(l) Emergency Care Services........................................................... 5
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(m) Financial Review.................................................................. 5
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(n) Provider Acquisitions............................................................. 5
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(o) Other............................................................................. 5
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(S)3.3 Dental Decisions........................................................................ 5
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ARTICLE IV. RESPONSIBILITIES OF SERVICE COMPANY..................................................... 6
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(S)4.1 Clinics................................................................................. 6
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(S)4.2 Equipment............................................................................... 6
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(S)4.4 Supplies................................................................................ 7
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(S)4.5 Capital Investment...................................................................... 7
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(S)4.6 Support Services........................................................................ 7
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(S)4.7 Quality Assurance, Risk Management, and Utilization Review.............................. 7
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i
(S)4.8 Licenses and Permits.................................................................... 8
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(S)4.9 Personnel............................................................................... 8
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(S)4.10 Contract Negotiations................................................................... 8
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(S)4.11 Billing and Collection.................................................................. 8
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(S)4.12 Provider Account........................................................................ 10
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(a) Power of Attorney................................................................. 10
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(b) Priority of Payments.............................................................. 10
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(c) Further Assurances................................................................ 10
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(S)4.13 Financial Matters....................................................................... 10
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(a) Annual Budget..................................................................... 10
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(b) Accounting and Financial Records.................................................. 11
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(c) Review of Expenditures............................................................ 11
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(d) Tax Matters....................................................................... 11
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(i) General..................................................................... 11
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(ii) Sales and Use Taxes......................................................... 11
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(S)4.14 Reports and Records..................................................................... 12
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(a) Dental Records.................................................................... 12
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(b) Other Reports and Records......................................................... 12
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(S)4.15 Recruitment of Provider Dentists........................................................ 12
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(S)4.16 Service Company's Insurance............................................................. 12
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(S)4.17 License of Name and Marks............................................................... 13
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(S)4.18 No Warranty............................................................................. 13
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ARTICLE V. RESPONSIBILITIES OF PROVIDER............................................................ 13
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(S)5.1 Organization and Operations............................................................. 13
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(S)5.2 Provider Personnel...................................................................... 13
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(a) Dentist Personnel................................................................. 13
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(b) Provider and Patient Scheduling................................................... 14
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(c) Paid Hours Reporting.............................................................. 14
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(d) Non-Dentist Dental Care Personnel................................................. 14
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(S)5.3 Professional Standards.................................................................. 14
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(S)5.4 Dental Care............................................................................. 15
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(S)5.5 Peer Review and Quality Assurance....................................................... 15
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(S)5.6 Provider's Insurance.................................................................... 16
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(S)5.7 Noncompetition.......................................................................... 16
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(S)5.8 Use of Name............................................................................. 17
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ARTICLE VI. CONFIDENTIALITY......................................................................... 17
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(S)6.1 Confidential and Proprietary Information................................................ 17
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(S)6.2 Use of Practice Statistics.............................................................. 18
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ARTICLE VII. FINANCIAL ARRANGEMENTS.................................................................. 18
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(S)7.1 Clinic Expense Reimbursement............................................................ 18
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(S)7.2 Repayment of Advances................................................................... 18
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ii
(S)7.3 Fees................................................................................... 18
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(a) Service Fee...................................................................... 18
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(b) Performance Fee.................................................................. 19
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(S)7.4 Adjustments to Fees.................................................................... 19
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(S)7.5 Reasonable Value....................................................................... 19
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(S)7.6 Payment................................................................................ 19
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(S)7.7 Accounts Receivable.................................................................... 20
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ARTICLE VIII. TERM AND TERMINATION................................................................... 20
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(S)8.1 Initial and Renewal Term............................................................... 20
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(S)8.2 Termination............................................................................ 20
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(a) Termination By Service Company................................................... 20
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(b) Termination By Provider.......................................................... 21
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(c) Termination by Agreement......................................................... 22
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(d) Legislative, Regulatory or Administrative Change................................. 22
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(S)8.3 Effects of Termination................................................................. 22
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(S)8.4 Purchase Obligation.................................................................... 23
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(S)8.5 Closing of Purchase.................................................................... 24
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ARTICLE IX. GENERAL................................................................................ 25
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(S)9.1 Administrative Services Only........................................................... 25
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(S)9.2 Relationship of Parties................................................................ 25
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(S)9.3 Notices................................................................................ 26
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(S)9.4 Execution of Documents................................................................. 26
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(S)9.5 Governing Law.......................................................................... 27
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(S)9.6 Severability........................................................................... 27
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(S)9.7 Setoff................................................................................. 27
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(S)9.8 Remedies............................................................................... 27
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(S)9.9 Non-waiver............................................................................. 27
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(S)9.10 Indemnification........................................................................ 28
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(S)9.11 No Third Party Benefit................................................................. 28
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(S)9.12 Captions............................................................................... 28
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(S)9.13 Genders and Numbers.................................................................... 28
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(S)9.14 Complete Agreement..................................................................... 28
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(S)9.15 Counterparts........................................................................... 28
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(S)9.16 Assignment............................................................................. 28
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(S)9.17 Successors............................................................................. 29
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(S)9.18 Force Majeure.......................................................................... 29
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INDEX TO EXHIBITS..................................................................................... 30
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DEFINITIONS........................................................................................... i
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iii
SERVICE AGREEMENT
This agreement is made effective November 12, 1996, between PDHC, Inc., a
Minnesota corporation ("Service Company"), and PDG, P.A., a Minnesota
professional association ("Provider").
Background Information
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A. Provider operates as a dental practice providing dental services to the
general public in and around the Minneapolis-St. ▇▇▇▇ area through individual
dentists who are licensed to practice dentistry in the state of Minnesota and
who are employed or otherwise retained by Provider.
B. Service Company is engaged in the business of providing assets,
personnel, and services to dental practices other than such services as are
directly related to the provision of dental care or the practice of dentistry.
Service Company's services are intended to improve the efficiency and
profitability of dental practices and permit the dentists in such practices to
focus their efforts solely on rendering quality dental care.
C. Provider desires to focus its energies, expertise and time on the
practice of dentistry and on the delivery of dental services to patients. To
accomplish this goal, Provider desires to engage Service Company to provide such
services as are necessary and appropriate for the day-to-day administration of
the non-dental aspects of Provider's dental practice, and Service Company
desires to provide such services to Provider, all upon the terms and subject to
the conditions set forth in this agreement.
Statement of Agreement
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Service Company and Provider (the "Parties") hereby acknowledge the
accuracy of the foregoing Background Information and agree as follows:
ARTICLE I. DEFINITIONS
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Capitalized terms used in this agreement but not otherwise defined herein
shall have the respective meanings given those terms in the attached Exhibit A.
ARTICLE II. APPOINTMENT AND AUTHORITY OF SERVICE COMPANY
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(S)2.1 Appointment. Provider hereby appoints Service Company as its sole
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and exclusive agent for the performance of the Services, and Service Company
hereby accepts such appointment, subject at all times to the provisions of this
agreement.
(S)2.2 Authority. Service Company shall have all power, authority, and
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responsibility reasonably necessary to provide the Services and carry out
Service Company's other obligations under this agreement. Without limiting the
foregoing, Service Company shall have the authority to provide the Services in
any reasonable manner Service Company deems appropriate to meet the day-to-day
requirements of the business functions of Provider. Subject to Article III of
this agreement, Service Company is also expressly authorized to negotiate and
execute on behalf of Provider contracts that do not relate to the provision of
Dental Care. Provider shall give Service Company 30 days prior written notice
of Provider's intent to execute any agreement obligating Provider to perform
Dental Care or otherwise creating a binding legal obligation on Provider.
Unless an expense is expressly designated as a Service Company Expense in this
agreement, all expenses incurred by Service Company in providing services
pursuant to this agreement shall be Clinic Expenses.
(S)2.3 Patient Referrals. The Parties agree that the benefits to Provider
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hereunder do not require, are not payment for, and are not in any way contingent
upon the referral, admission, treatment, or any other arrangement for the
provision of any item or service offered by Service Company to patients of
Provider in any facility, laboratory, or dental care operation controlled,
managed, or operated by Service Company.
(S)2.4 Internal Management of Provider. Matters involving the tax
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planning, investment planning, and internal management, control, or finances of
Provider, including without limitation the compensation of dentist employees of
Provider, shall remain the sole and exclusive responsibility of Provider and its
shareholders.
(S)2.5 Practice of Dentistry. The Parties acknowledge and agree that: (a)
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Service Company is not authorized or qualified to engage in any activity that
may be construed or deemed to constitute the practice of dentistry; and (b)
notwithstanding anything in this agreement to the contrary (i) Provider, through
its dentists, shall be solely responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Dental Care
and that all Dental Care shall be provided and performed exclusively by or under
the supervision of dentists as such dentists, in their sole discretion, deem
appropriate, (ii) Service Company shall not have or exercise any control or
supervision over the provision of Dental Care, and (iii) to the extent any act
or service required of Service Company under this agreement is reasonably likely
to be construed by a court of competent jurisdiction or by any applicable
governmental agency to constitute the practice of dentistry, the requirement to
perform that act or service by Service Company shall be deemed waived and
unenforceable. For purposes of this agreement and as the context permits, the
term "dentist" shall be deemed to include those individuals licensed by the
State of Minnesota to practice general dentistry or a dental care specialty such
as orthodontics, endodontics, periodontics, prosthodontics, pediatric dentistry,
oral surgery, and oral medicine.
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ARTICLE III. POLICY BOARD
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(S)3.1 Formation and Operation of Policy Board. The Parties hereby
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establish a policy board (the "Policy Board") which shall be responsible for
developing and implementing management and administrative policies for the
overall operation of Clinics. The Policy Board shall consist of six members, of
which three members shall be designated by Service Company, in its sole
discretion, and three members shall be designated by Provider; provided that,
unless otherwise agreed by the Parties, the Policy Board members designated by
Provider shall be licensed dentists employed by Provider. Each Party shall have
the right to designate, remove, and replace its Policy Board designees at any
time and from time to time upon notice to the other Party.
Except as may otherwise be expressly provided in this agreement or
any rules, bylaws, or regulations adopted by the Policy Board, the act of a
majority of the members of the Policy Board shall be the act of the Policy
Board. The Policy Board's decisions may be evidenced by either minutes of a
Policy Board meeting or written action taken by the Policy Board members making
the decision; provided that no written action signed by less than all of the
Policy Board members shall be effective unless notice of such action is given to
the Policy Board member who is not signing such action at least two business
days prior to the effective date of such action. The decisions, resolutions, and
actions of the Policy Board shall be binding on both Parties and, together with
the recommendations of the Policy Board, shall be implemented by the Parties, as
appropriate.
The Policy Board shall hold regular meetings at such places and at
such times (not less often than quarterly) as the Policy Board may determine
from time to time. Special Policy Board meetings may be called by either Party
or any two Policy Board members; provided that notice of any meeting which is
not a regularly scheduled meeting shall be given to all Policy Board members at
least five business days prior to the meeting, unless such notice is waived by
the Policy Board members. Policy Board meetings may be held through the use of
telecommunications equipment so long as all members can hear each other clearly.
(S)3.2 Responsibilities of the Policy Board. The Policy Board shall have
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the following duties, responsibilities, and authority:
(a) Capital Improvements and Expansion. Any renovation and expansion
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plans and capital equipment expenditures with respect to Clinics shall be
reviewed and approved by the Policy Board and shall be based upon economic
feasibility, dentist support, productivity, and then-current market conditions.
(b) Budgeting.
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(i) Annual Budgets. All annual capital and operating budgets
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prepared in accordance with (S)4.13(a) by Service Company (in consultation with
Provider) shall be subject to the review, comment, and approval of the Policy
Board. Notwithstanding the foregoing
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sentence, such budgets shall be subject to the review, comment, and approval of
Parent. The Policy Board shall, upon approving any budget pursuant to this
section, deliver a copy of such approved budget to the Chief Financial Officer
of Parent for Parent's approval.
(ii) Effect of Certain Changes. In the event Provider merges or
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combines with or otherwise acquires another dental practice (subject to
(S)3.2(n), below), the effect of which will be to increase then-current annual
budgeted Adjusted Gross Revenues by more than [*]%, the Policy Board shall
review the then-current Budget to determine whether such Budget should be
revised to appropriately reflect such acquisition.
(iii) Variances. The Policy Board shall have the authority to
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approve any single expenditure which is greater than [*]% of the then-current
annual budgeted Adjusted Gross Revenue and would have the effect of making any
line item in the then-current Budget exceed the annual budget for such line item
by more than [*]%.
(c) Marketing and Advertising. All advertising and other marketing of
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the dental services performed at any Clinic shall be subject to the prior review
and approval of the Policy Board.
(d) Patient Fees; Collection Policies. Subject to (S)3.3, as a part
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of the annual operating budget, in consultation with Provider and Service
Company, the Policy Board shall review and make recommendations concerning the
fee schedules and collection policies for all dental and ancillary services
rendered by Provider. Approval of the fee schedules shall be a Dental Decision.
(e) Provider and Payor Relationships. Subject to (S)3.3, decisions
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regarding the establishment or maintenance of contractual relationships between
Provider and outside or institutional dental care providers and third-party
payors shall be subject to the review and recommendations of the Policy Board.
Subject to (S)3.3, all discounted fee practices and schedules, including
individual provider or specialty discount arrangements, preferred provider
organization discounts and capitated fee arrangements, shall be subject to the
review and recommendations of the Policy Board. Where there is no clear
methodology for the allocation of capitated fees among Provider's Dental Care
Professionals, the Policy Board shall recommend the methodology intended to
result in the equitable and appropriate allocation of all related fees
consistent with the type and utilization of Dental Care covered under the
capitation arrangement.
(f) Strategic and Operational Planning. The Policy Board shall review
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and approve the long-term strategic and short-term operational goals, objectives
and plans developed by Service Company.
(g) Capital Expenditures. The Policy Board shall determine the
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priority of major capital expenditures.
(h) Personnel Planning. The Policy Board shall review and approve
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Provider and support personnel manpower plans developed by Service Company. The
Policy Board shall review and approve any variations to the restrictive
covenants in the dentists' employment or other agreements.
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
4
(i) Grievance Referrals. The Policy Board shall consider and make
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recommendations to the Parties regarding grievances pertaining to matters not
specifically addressed in this agreement as referred to it by key Provider or
Service Company management and supervisory personnel.
(j) Patient Concerns and Claims. The Policy Board shall review, approve
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and monitor a patient claims tracking, monitoring and recovery procedure which
shall provide, without limitation, for (i) the timely and appropriate resolution
of all claims and related patient and Provider reimbursement decisions, and (ii)
the distribution of a summary report setting forth the status and proposed
actions with respect to each such claim to Provider and Service Company on a
regular basis. All Dental Care related patient concerns and claims
reimbursement decisions shall be a Provider Expense.
(k) Environmental Health and Safety. The Policy Board shall review,
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approve and monitor environmental and workplace health and safety guidelines,
the goal of which is to achieve compliance with current national, state and
local laws and regulations regarding environmental and workplace health and
safety.
(l) Emergency Care Services. The Policy Board shall review, approve and
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periodically make suggestions for improving (i) the organization and delivery of
emergency Dental Care by Provider, and (ii) the process and guidelines for
ensuring an appropriate response by Provider to dental and in-Clinic medical
emergencies as they may occur from time to time.
(m) Financial Review. The Policy Board shall review and monitor the
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financial performance of Provider with respect to the attainment of its budgeted
goals.
(n) Provider Acquisitions. The Policy Board shall have the authority to
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approve or disapprove any merger or combination with or acquisition of any
dental practice by Provider.
(o) Other. The Policy Board shall have such other duties,
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responsibilities, and authority as may be set forth in this agreement or agreed
upon by the Parties from time to time.
(S)3.3 Dental Decisions. Notwithstanding the preceding section or any
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other provisions of this agreement to the contrary, all Dental Decisions
(defined below) will be made solely by the dentist members of the Policy Board;
provided that non-dentist members of the Policy Board may participate in the
analysis and discussion process. For purposes of this agreement, "Dental
Decisions" shall mean decisions relating directly to: (a) types and levels of
Dental Care to be provided; (b) recruitment of dentists for Provider, including
the evaluation of the background, experience, qualifications, specialties, and
other credentials of recruited dentists; (c) fee schedules for Provider's
services, including without limitation Provider's usual and customary fee
schedule; and (d) any other Dental Care related functions or decisions agreed
upon by the Parties.
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ARTICLE IV. RESPONSIBILITIES OF SERVICE COMPANY
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During the Term, Service Company shall provide all such Services as are
necessary and appropriate for the day-to-day administration of the business
aspects of Provider's operations, including without limitation those services
set forth in this Article, provided that all such services shall be subject to
the applicable Budget.
(S)4.1 Clinics
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(a) Service Company shall lease, acquire or otherwise procure a Clinic
in such locations as are approved by the Policy Board, taking into consideration
the professional concerns of Provider. The expenses associated with any such
leasing, acquisition, or procurement shall be Clinic Expenses. Any Clinic
procured by Service Company for use by Provider shall be procured at
commercially reasonable rates. Any move from a present Provider practice
location shall be made only after Service Company has received Provider Consent.
(b) In the event Provider is the lessee of a Clinic under a lease with
an unrelated and nonaffiliated lessor, Service Company may require Provider to
assign such lease to Service Company upon receipt of consent from the lessor.
Provider shall exercise all reasonable efforts to assist in obtaining the
lessor's consent to the assignment. Any expenses incurred in the assignment
shall be Clinic Expenses.
(c) Service Company shall be responsible for the repair and maintenance
of each Clinic, in a manner consistent with Service Company's responsibilities
under the terms of any lease or other use arrangement relating to that Clinic,
the costs and expenses of which shall be a Clinic Expense; provided that the
costs and expenses of any repairs or maintenance necessitated by the negligence
or willful misconduct of Provider or its dentists, other personnel, agents, or
invitees shall be a Provider Expense.
(S)4.2 Equipment.
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(a) Service Company shall provide all non-dental equipment, fixtures,
office supplies, furniture and furnishings deemed reasonably necessary by
Service Company for the operation of each Clinic and reasonably necessary for
the provision of Dental Care.
(b) Service Company shall provide, finance, or cause to be provided or
financed such dental related equipment as is reasonably required by Provider.
Subject to economic feasibility as set forth in the budgets approved pursuant to
this agreement, Provider shall have final authority in all dental equipment
selections. Service Company may, however, advise Provider on the relationship
between its dental equipment decisions and the overall administrative and
financial operations of the Clinics. Except for Special Dental Supplies
(defined in (S) 4.3, below), all dental and non-dental equipment acquired for
the use of Provider shall be owned by Service Company.
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(c) Service Company shall be responsible for repairing, maintaining,
and keeping in reasonably good condition (ordinary wear and tear excepted), and
replacing (as necessary) all equipment provided by Service Company under this
agreement, the cost and expense of which shall be a Clinic Expense; and provided
that the cost and expense for any repairs, maintenance and replacement
necessitated by the negligence or willful misconduct of Provider or its
dentists, other personnel, or agents shall be a Provider Expense.
(S)4.3 Laboratory Services. Service Company shall arrange for laboratory
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services, including without limitation dental appliance laboratory service,
pathology laboratory service, medical laboratory service, and such other
laboratory services as are reasonably necessary and appropriate for the
operation of each Clinic and the provision of Dental Care therein.
(S)4.4 Supplies. Service Company shall order, procure, purchase, own, and
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provide to Provider a reasonable inventory of Ordinary Dental Supplies and
office supplies as are reasonably necessary and appropriate for the operation of
each Clinic and the provision of Dental Care therein. Unless otherwise
prohibited by federal and/or state law, Service Company shall also order,
procure, purchase and provide on behalf of and as agent for Provider all
reasonable Special Dental Supplies required by Provider to provide Dental Care,
the cost of which shall be a Clinic Expense. Service Company shall ensure that
each Clinic is at all times adequately stocked with all such supplies. The
ultimate oversight, supervision and ownership of (a) all office and Ordinary
Dental Supplies is and shall remain the sole responsibility of Service Company,
and (b) all Special Dental Supplies is and shall remain the sole responsibility
of Provider.
(S)4.5 Capital Investment. Access to all needed working capital and
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capital expenditures approved by the Policy Board will be provided by Service
Company. Service Company shall determine the source of capital to be invested,
which may include (a) intracompany borrowings from Parent (at the rate set forth
in clause (j) in the definition of "Clinic Expenses"), and (b) borrowings,
leases, or other financing methods through independent third-party financial
institutions.
(S)4.6 Support Services. Service Company shall provide or arrange for all
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printing, stationery, forms, postage, duplication, facsimile, photocopying, and
data transmission and processing services, information services (including
providing a computer system for clinic functions, billing, communications, and
management), and other support services as are reasonably necessary and
appropriate for the operation of each Clinic and the provision of Dental Care
therein.
(S)4.7 Quality Assurance, Risk Management, and Utilization Review. Service
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Company shall assist Provider in Provider's establishment and implementation of
procedures to ensure the consistency, quality, appropriateness, and necessity of
Dental Care provided by Provider, and shall provide administrative support for
Provider's overall quality assurance, risk management, and utilization review
programs. Service Company shall have the authority to monitor Provider's level
of conformance with such procedures and to report its findings to Provider.
7
(S)4.8 Licenses and Permits. Although Provider shall be solely
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responsible for obtaining and maintaining all federal, state, and local licenses
and regulatory permits required for or in connection with the operation of
Provider and in connection with the operation of all dental equipment located in
each Clinic, Service Company shall assist Provider with the implementation of a
plan designed to ensure that all such licenses and permits are obtained and
shall provide reasonable assistance to Provider in obtaining the same. Service
Company also shall maintain all licenses and permits required for all equipment
(existing and future) located at each Clinic.
(S)4.9 Personnel. Except as provided in (S)5.2(d) of this agreement and
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subject to (S)3.3, Service Company shall employ or otherwise retain and shall be
responsible for recruiting, hiring, and terminating all management,
administrative, supervisory, clerical, secretarial, bookkeeping, accounting,
payroll, dental assistants, hygienists, laboratory technicians and personnel,
and other non-dentist personnel as Service Company deems necessary and
appropriate for Service Company's performance of its duties and obligations
under this agreement. The selection, training, and supervision of: (a) dental
assistants, hygienists, and other clinical personnel to be employed by Service
Company shall be the responsibility of Provider; and (b) all other personnel to
be employed by Service Company shall be the responsibility of Service Company.
Consistent with reasonably prudent personnel management policies, Service
Company shall seek and consider the advice, input, and requests of Provider in
regard to personnel matters. Service Company shall have sole responsibility for
determining the salaries and fringe benefits of such non-professional personnel,
and for withholding all appropriate amounts for income taxes, unemployment
insurance, social security, workers' compensation, and any other withholding
required by applicable law.
(S)4.10 Contract Negotiations. Service Company shall advise Provider with
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respect to and negotiate, either directly or on Provider's behalf, as
appropriate, such contractual arrangements with third parties as are reasonably
necessary and appropriate for Provider's provision of Dental Care, including
without limitation negotiated price agreements with third party payors,
alternative delivery systems, or other purchasers of group dental care services;
provided that no contract or arrangement regarding the provision of Dental Care
shall be entered into without Provider Consent.
(S)4.11 Billing and Collection. On behalf of and for the account of
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Provider, Service Company shall establish and maintain credit and billing and
collection policies and procedures, and shall exercise reasonable efforts to
▇▇▇▇ and collect in a timely manner all professional and other fees for all
billable Dental Care provided by Dental Care Professionals. Service Company
shall advise and consult with Provider regarding the fees for Dental Care
provided by Provider (including any related discounting policy), it being
understood, however, that Provider shall establish the fees (subject to
(S)3.2(d), above) to be charged for Dental Care and that Service Company shall
have no authority whatsoever with respect to the establishment of such fees. In
connection with the billing and collection services to be provided hereunder,
Provider hereby grants to Service Company, throughout the Term (and thereafter
as provided in (S)8.3), an exclusive special power of attorney and appoints
Service Company as Provider's exclusive true
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and lawful agent and attorney-in-fact, and Service Company hereby accepts such
special power of attorney and appointment, for the following purposes:
(a) To ▇▇▇▇ Provider's patients, in Provider's name and on Provider's
behalf, for all billable Dental Care provided by or on behalf of Provider to
patients.
(b) To ▇▇▇▇, in Provider's name and on Provider's behalf, all claims for
reimbursement or indemnification from insurance companies and plans, all state
or federally funded dental benefit plans, and all other third party payors or
fiscal intermediaries for all covered billable Dental Care provided by or on
behalf of Provider to patients.
(c) To collect and receive, in Provider's name and on Provider's behalf,
all accounts receivable generated by such ▇▇▇▇▇▇▇▇ and claims for reimbursement,
to administer such accounts including, but not limited to, extending the time of
payment of any such accounts for cash, credit or otherwise; discharging or
releasing the obligors of any such accounts; suing, assigning or selling at a
discount such accounts to collection agencies; or taking other measures to
require the payment of any such accounts; provided, however, that extraordinary
collection measures, such as filing lawsuits, discharging or releasing obligors,
or assigning or selling accounts at a discount to collection agencies shall not
be undertaken without Provider Consent.
(d) To deposit all amounts collected into the Provider Account which shall
be and at all times remain in Provider's name. Provider shall transfer and
deliver to Service Company all funds received by Provider from patients or third
party payors for Dental Care. Upon receipt by Service Company of any funds from
patients or third party payors or from Provider for Dental Care pursuant to this
agreement, Service Company shall promptly deposit the same into the Provider
Account.
(e) To take possession of, endorse in the name of Provider, and deposit
into the Provider Account any notes, checks, money orders, insurance payments,
and any other instruments received in payment of accounts receivable for Dental
Care.
(f) To sign checks, drafts, bank notes or other instruments on behalf of
Provider, and to make withdrawals from the Provider Account for payments
specified in this agreement and as requested from time to time by Provider.
Upon request of Service Company, Provider shall execute and deliver to the
financial institution at which the Provider Account is maintained such
additional documents or instruments as Service Company may reasonably request to
evidence or effect the special power of attorney granted to Service Company by
Provider pursuant to this section and (S)4.12. The special power of attorney
granted herein is coupled with an interest and shall be irrevocable except with
Service Company's written consent. The irrevocable power of attorney shall
expire when this agreement has been terminated, all accounts receivable
purchased by Service Company pursuant to (S)7.7, if any, have been collected,
and all amounts due to Service Company as described in Article VII have been
paid.
9
(S)4.12 Provider Account.
----------------
(a) Power of Attorney. Service Company shall have access to the
-----------------
Provider Account solely for the purposes stated herein and shall use all funds
on deposit therein to pay all Clinic Expenses in accordance with the terms of
this agreement. Provider hereby grants to Service Company an exclusive special
power of attorney and appoints Service Company as Provider's true and lawful
agent and attorney-in-fact, throughout the Term (and thereafter as provided in
(S)8.3), and Service Company hereby accepts such special power of attorney and
appointment, to make withdrawals from Provider Account for payments specified in
this agreement and as requested from time-to-time by Provider. Notwithstanding
this exclusive special power of attorney, Provider may, upon reasonable advance
notice to Service Company, request that Service Company draw checks on the
Provider Account for Provider Expenses and such other amounts as may be due to
Provider under this agreement, subject to (S)4.12(b) of this agreement.
Disbursements shall be related to and in such amount so as to ensure that
disbursements made without prior Provider Consent are consistent with the
expenditures authorized by the Budget.
(b) Priority of Payments. All funds that are in the Provider Account
--------------------
shall be applied (to the extent available) in the following order of priority:
(i) Reimbursement of Clinic Expenses to Service Company pursuant
to (S)7.1;
(ii) Repayment of advances made by Service Company to Provider
pursuant to (S)7.2;
(iii) Payment of the Service Fee to Service Company pursuant to
(S)7.3(a);
(iv) Payment of Provider Expenses to Provider; and
(v) Payment of the Performance Fee to Service Company pursuant
to (S)7.3(b).
(c) Further Assurances. Promptly upon request by Service Company,
------------------
Provider shall execute a separate power of attorney in form reasonably
satisfactory to Service Company for the purpose of further confirming or
evidencing the rights granted to Service Company under (S)(S)4.11 and 4.12.
(S)4.13 Financial Matters.
-----------------
(a) Annual Budget. At least 30 days prior to the commencement of each
-------------
calendar year, Service Company, in consultation with Provider, shall prepare and
deliver to the Policy Board for its approval a proposed Budget, setting forth an
estimate of Provider's revenue and expenses for the upcoming calendar year
(including without limitation the Service and Performance Fees associated with
the services provided by Service Company hereunder). The Budget with respect to
the remainder of calendar year 1996 will allocate to Provider Expenses an amount
necessary to cover Provider's current obligations to its professional personnel
and its other obligations identified herein, all of which shall be consistent
with such similar expenditures as were incurred by Service Company prior to the
acquisition of Service Company by Parent. The Budget with respect to calendar
year 1997 shall provide, among other things, that [*] of the Adjusted Gross
Revenue shall be allocated to Provider Expenses. In each succeeding Budget,
unless the Parties otherwise mutually agree, such percentage of the Adjusted
Gross Revenue shall be allocated to Provider Expenses.
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
10
In the event a proposed Budget is disapproved by either the Policy Board or
Parent (pursuant to (S)3.2(b)(i)) or the Policy Board recommends revisions to
the then-current Budget (pursuant to (S)3.2(b)(ii)), Service Company, in
consultation with Provider, shall promptly revise such Budget, taking into
consideration the comments of the Policy Board or Parent, as applicable, and
shall deliver such revised Budget to the Policy Board for approval. In the
event that a proposed Budget has not been approved by both the Policy Board and
Parent by the beginning of the calendar year, the Budget for the prior year
shall be deemed to be adopted as the Budget for the current year until a new
Budget has been approved by both the Policy Board and Parent.
(b) Accounting and Financial Records. Service Company shall establish
--------------------------------
and administer accounting policies and procedures, internal controls, and
systems for the development, preparation, and safekeeping of administrative or
financial records and books of account relating to the business and financial
affairs of Provider, all of which shall be prepared and maintained in accordance
with GAAP. Service Company shall prepare and deliver to Provider, within 90 days
of the end of each calendar year, a balance sheet and an income statement
reflecting the financial status of Provider in regard to the provision of Dental
Care as of the end of such calendar year, all of which shall be prepared in
accordance with GAAP. In addition, Service Company shall prepare or assist in
the preparation of any other financial statements or records as Provider may
reasonably request.
(c) Review of Expenditures. One of Provider's representatives to the
----------------------
Policy Board shall review all expenditures related to the operation of Provider,
but such representative shall not have the power to prohibit or invalidate any
expenditure.
(d) Tax Matters.
-----------
(i) General. Service Company shall prepare or arrange for the
-------
preparation of all tax returns and reports of Provider required by applicable
law, which returns and reports shall be prepared by an accountant reasonably
acceptable to Provider.
(ii) Sales and Use Taxes. Service Company and Provider
-------------------
acknowledge and agree that to the extent that any of the services to be provided
by Service Company hereunder may be subject to any state sales and use taxes,
Service Company may have a legal obligation to collect such taxes from Provider
and to remit the same to the appropriate tax collection authorities. Provider
agrees to pay any and all applicable state sales, use, gross receipts, and other
similar taxes and charges (other than taxes on Service Company's net income)
with respect to any amount paid to Service Company hereunder and that such
amounts shall be a Provider Expense.
(S)4.14 Reports and Records.
-------------------
(a) Dental Records. Service Company shall establish, monitor, and
--------------
maintain procedures and policies for the timely creation, preparation, filing
and retrieval of all dental
11
records generated by Provider in connection with Provider's provision of Dental
Care; and, subject to applicable law, shall ensure that dental records are
promptly available to dentists and any other appropriate persons. All such
dental records shall be retained and maintained in accordance with all
applicable state and federal laws relating to the confidentiality and retention
thereof. All dental records shall be and remain the property of Provider.
(b) Other Reports and Records. Service Company shall timely create,
-------------------------
prepare, and file such additional reports and records as are reasonably
necessary and appropriate for Provider's provision of Dental Care, and shall be
prepared to analyze and interpret such reports and records upon the request of
Provider.
(S)4.15 Recruitment of Provider Dentists. Upon Provider's request,
--------------------------------
Service Company shall perform all services reasonably necessary and appropriate
in connection with the recruitment of professional dental personnel. Service
Company shall provide Provider with model agreements to document Provider's
employment, retention or other service arrangements with such individuals.
However, it shall be and remain the sole and complete responsibility of Provider
to interview, select, contract with (subject to (S)5.2, below), supervise,
control and terminate all dentists performing Dental Care or other professional
services, and Service Company shall have no authority whatsoever with respect to
such activities.
(S)4.16 Service Company's Insurance. Throughout the Term, Service
---------------------------
Company shall, as a Clinic Expense, obtain and maintain with commercial
carriers, or through self-insurance, or some combination thereof: (a)
appropriate worker's compensation coverage for the employees of Service Company
provided pursuant to this agreement; and (b) professional and comprehensive
general liability insurance covering Service Company, Service Company's
personnel, and all of Service Company's equipment in such amounts and on such
terms and conditions as Service Company deems appropriate. Service Company
shall cause Provider to be named as an additional insured on Service Company's
property and casualty insurance policies. Upon the request of Provider, Service
Company shall provide Provider with a certificate evidencing such insurance
coverage. Service Company may also carry, at Service Company's option and as a
Clinic Expense, key person life and disability insurance on any shareholder or
dentist employee of Provider in amounts determined as reasonable and sufficient
by Service Company. Service Company shall be the owner and beneficiary of any
such insurance.
(S)4.17 License of Name and Marks. Service Company hereby grants to
-------------------------
Provider, for the Term, a non-exclusive royalty-free license to use the name
"Park Dental" and all related marks and logos owned by Service Company for the
purpose of fulfilling its obligations hereunder, including without limitation
providing Dental Care to its patients.
(S)4.18 No Warranty. Provider acknowledges that Service Company has not
-----------
made and will not make any representations or warranties, express or implied,
regarding Service Company's services under this agreement or the results of
those services, including without
12
limitation any representations or warranties that the services provided by
Service Company will result in any particular amount or level of dental practice
or income to Provider.
ARTICLE V. RESPONSIBILITIES OF PROVIDER
----------------------------
(S)5.1 Organization and Operations. As a continuing condition of Service
---------------------------
Company's obligations under this agreement, Provider shall at all times during
the Term: (a) be and remain legally organized and operated to provide Dental
Care in a manner consistent with all state and federal laws; (b) operate and
maintain within the Practice Territory a full time practice of dentistry
providing Dental Care in compliance with all applicable federal, state, and
local laws, rules, regulations, ordinances, and orders; (c) maintain and use its
best efforts to enforce its articles or certificate of incorporation (or other
instrument of organization), bylaws, shareholder agreements, and other
organizational documents (hereafter in this (S)5.1 simply "organizational
documents") in the respective forms provided to Service Company prior to
execution of this agreement; (d) have at least three executive officers at the
level of vice president or above who are also dentist employees of Provider; (e)
maintain and use its best efforts to enforce the written employment agreements
and independent contractor agreements described in (S)5.2(a), below; and (f)
not, without Service Company Consent, (i) amend any of its employment agreements
or organizational documents in any material respect or waive any material rights
thereunder, or (ii) engage in any transaction constituting a merger,
consolidation, reorganization, sale or purchase of assets outside of the
ordinary course of business, liquidation, or dissolution. Provider hereby
acknowledges that Service Company would not have entered into this agreement but
for Provider's covenant to maintain such organizational documents and employment
agreements, and Provider shall pay to Service Company, in addition to the
amounts set forth in Article VII, any damages, compensation, payment, or
settlement amounts received by Provider from a dentist who terminates his
employment agreement without cause or whose employment agreement is terminated
by Provider for cause.
(S)5.2 Provider Personnel.
------------------
(a) Dentist Personnel. Provider shall retain, as a Provider Expense and
-----------------
not as a Clinic Expense, that number of dentists during the Term which are
necessary and appropriate, in Provider's sole discretion, to provide Dental Care
to reasonably meet the demand therefor. Provider shall cause each dentist
retained by Provider to hold and maintain a valid and unrestricted license to
practice dentistry in the State of Minnesota, including without limitation any
licenses required for the provision of any specialty dental services, together
with all necessary or appropriate board or other certifications. Throughout the
Term, Provider shall enter into and maintain a written employment agreement
substantially in the form of Exhibit D for all dentists now and hereafter
employed by Provider; provided that: (i) Provider shall not be obligated to
enter into an employment agreement in the form of Exhibit D with any dentist
whose employment agreement was assigned by Service Company to Provider
contemporaneous with the execution of this agreement, so long as such dentist's
employment agreement remains in effect; (ii) Provider shall, throughout the
Term, enter into and maintain a written employment agreement substantially in
the form of Exhibit C with each dentist of Provider who now or
13
hereafter is either an executive officer (at a level of vice president or above)
of, or Policy Board member designated by, Provider; and (iii) Provider shall,
immediately upon execution of this agreement, enter into and maintain a written
employment agreement substantially in the form of Exhibit C with each of the
dentists set forth in Exhibit E. Throughout the Term, Provider shall enter into
and maintain a written agreement with each independent contractor retained by
Provider, which agreements shall contain confidentiality provisions
substantially similar to those contained in the employment agreement in the form
of Exhibit D. Provider shall be responsible for paying the compensation and
benefits as applicable, for all dentists and any other dentist personnel or
other contracted or affiliated dentists, and for withholding all sums for income
tax, unemployment insurance, social security, or any other withholding required
by applicable law. Service Company may, on behalf of Provider, administer the
compensation and benefits with respect to such individuals in accordance with
the written agreement between Provider and each dentist. Service Company shall
neither control nor direct any dentist in the performance of Dental Care for
patients. Provider shall provide to Service Company evidence of such licensing,
certifications, and other credentials of the dentists retained by Provider as
Service Company may request from time to time.
(b) Provider and Patient Scheduling. Provider shall, with the
-------------------------------
reasonable assistance of Service Company, (i) develop a set of Provider and
patient scheduling guidelines and a corresponding scheduling system, and (ii)
support Service Company in the implementation of such guidelines and effective
operation of such system.
(c) Paid Hours Reporting. Provider shall support the development and
--------------------
effective operation by Service Company of a dentist paid hours reporting and
monitoring system.
(d) Non-Dentist Dental Care Personnel. All non-dentist personnel who
---------------------------------
provide Dental Care, including without limitation dental hygienists, denturists,
dental assistants, and other licensed or certified personnel shall be under such
control, supervision and direction of Provider and the dentists retained by
Provider in the performance of or in connection with Dental Care for patients as
is required under applicable state law and regulations.
(S)5.3 Professional Standards. As a continuing condition of Service
----------------------
Company's obligations hereunder, each dentist retained by Provider to provide
Dental Care must: (i) have and maintain a valid and unrestricted license to
practice dentistry in the state; and (ii) comply with, be controlled and
governed by, and otherwise provide Dental Care in accordance with applicable
federal, state and municipal laws, rules, regulations, ordinances and orders,
and the ethics and standard of care of the dental profession.
(S)5.4 Dental Care. Provider shall ensure that dentists and non-dentist
-----------
dental care personnel are available in sufficient numbers as are necessary or
appropriate to provide Dental Care to reasonably meet the demand for such Dental
Care. In the event that dentists employed by, or shareholders of, Provider are
not available to provide Dental Care coverage, Provider shall engage and retain
dentists on a temporary coverage basis, which dentists shall meet or exceed the
qualifications required for Provider's Dental Care Professionals under this
agreement.
14
All costs and expenses associated with the retention of such temporary coverage
shall be Provider Expenses. With the assistance of the Service Company,
Provider and the dentists shall be responsible for scheduling dentist and non-
dentist dental care personnel coverage of all dental procedures. Provider shall
cause all dentists to exert their best efforts to develop and promote Provider
in such a manner as to ensure Provider is able to serve the diverse needs of the
community. Provider shall organize and maintain a high quality, cost-effective
process for ensuring that patients will have timely access to emergency Dental
Care on a 24-hour, seven day per week basis.
(S)5.5 Peer Review and Quality Assurance. Provider shall conduct its peer
---------------------------------
review and quality assurance activities in a manner that is consistent with
maintaining the confidentiality of the related processes, actions, and
documentation.
(a) Provider shall designate a committee of dentists to function as a
dental peer review committee to review credentials of potential dentist
recruits, periodically review the credentials of Provider's existing dentists,
determine the practice privileges of the dentists retained by Provider, perform
quality assurance, utilization review, and Provider profiling functions, and
otherwise resolve dental competency issues. The dental peer review committee
shall function pursuant to formal written policies and procedures established by
Provider upon consultation with and the assistance of Service Company.
(b) Provider also shall adopt a quality assurance program to monitor
and evaluate the quality and cost-effectiveness of the Dental Care provided by
the dentist personnel of Provider and other non-dentist personnel providing
Dental Care under the supervision of Provider's dentists. Upon request of
Provider, Service Company shall provide administrative assistance to Provider in
performing its quality assurance activities.
(c) Provider shall cooperate fully with Service Company in an effort to
achieve and maintain full accreditation status for Provider. For purposes of
facilitating accreditation and other related processes and without limiting
Provider's responsibilities under the preceding sentence, Provider shall develop
and maintain a philosophy of practice and a set of practice guidelines which are
acceptable to the Policy Board. Provider shall cause all personnel retained by
it to abide by such philosophy and guidelines at all times.
(d) Provider shall, at the direction of the Policy Board, support the
development, maintenance, and operation of a patient concerns and claims
recording, reporting, review, resolution, and tracking process which is
acceptable to the Policy Board. Provider shall cause all personnel retained by
it to comply fully with such process at all times.
(e) Provider shall, with the assistance of Service Company, develop a
set of quality standards and utilization, process monitoring, and reporting
guidelines. Provider shall cause all personnel retained by it to comply with
such standards and guidelines.
15
(S)5.6 Provider's Insurance. Provider shall, obtain and maintain with
--------------------
commercial carriers reasonably acceptable to Service Company or through self
insurance or some combination thereof (reasonably acceptable to Service Company)
appropriate workers' compensation coverage for Provider's employed personnel
(which shall be a Provider Expense) and professional and comprehensive general
liability insurance covering Provider and each of the dentists Provider retains
to provide Dental Care (which shall be a Clinic Expense). All costs, expenses,
and liabilities incurred by Provider or Service Company in excess of the limits
of such policies shall be a Provider Expense. Provider shall actively support
the participation of all dentists retained by Provider in training and
continuing education programs in order to reduce the risk of exposure to and the
related cost of obtaining and maintaining such coverage. The comprehensive
general liability coverage and professional liability coverage shall be in such
minimum amounts as Service Company may establish from time to time. In
addition, Provider shall cause each dentist retained by Provider as an
independent contractor to obtain comparable professional and comprehensive
general liability insurance coverage. All such insurance policies shall name
Service Company as an additional insured and provide for at least 30 days
advance written notice to Provider and Service Company from the insurer with
respect to any alteration of coverage, cancellation, or proposed cancellation
for any reason. Provider shall cause to be issued to Service Company by such
insurer or insurers a certificate reflecting such coverage. Upon the
termination of this agreement for any reason, Provider shall continue to carry
professional liability insurance in the amounts specified in this section for 10
years after termination, or if Provider dissolves or ceases to practice
dentistry, Provider shall obtain and maintain as a Provider Expense "tail"
professional liability coverage, in the amounts specified in this section for an
extended reporting period of 10 years. Provider shall be responsible for paying
all premiums for "tail" insurance coverage. In no event shall the professional
liability insurance carrier be replaced or changed without Service Company
Consent. Service Company shall provide reasonable assistance to Provider to
obtain such coverage.
(S)5.7 Noncompetition. Provider acknowledges that Service Company will
--------------
incur substantial costs in providing the equipment, support services, personnel,
and other items and services that are the subject matter of this agreement and
that in the process of providing services under this agreement, Provider will
learn or have access to financial and other Confidential Information of Service
Company to which Provider would not otherwise be exposed. Provider also
recognizes that the services to be provided by Service Company will be feasible
only if Provider operates an active practice to which the dentists associated
with Provider devote their full time and attention. Accordingly, Provider
further agrees as follows:
(a) During the Term, except for its obligations under this agreement,
Provider shall not establish, operate, or provide Dental Care at any dental
office, clinic or other dental care facility anywhere within the Practice
Territory nor have an ownership interest, direct or indirect, in any entity, or
participate in any joint venture, which operates any such office, clinic, or
facility; and
(b) Except as specifically approved by Service Company in writing,
during the Term and for a period of five years immediately following the date
this agreement is terminated for
16
any reason, Provider shall not directly or indirectly own (excluding ownership
of less than five percent (5%) of the equity of any publicly traded entity),
manage, operate, control, lend funds to, lend its name to, or maintain any
interest in any entity, business, or enterprise which (i) provides, distributes,
or promotes any type of management or administrative services or products to
third parties in competition with Service Company in the Practice Territory or
(ii) offers any type of service or product to third parties substantially
similar to those offered by Service Company to Provider in the Practice
Territory. Notwithstanding the above restriction, nothing herein shall prohibit
Provider or any of its shareholders from providing management and administrative
services to its or their own dental practices after the termination of this
agreement, and nothing herein shall prohibit Provider or its shareholders from
contracting with a third party manager to provide administrative or management
services for its or their dental practices after termination of this agreement
as long as such relationship complies with the provisions of this section.
(S)5.8 Use of Name. At all times during the Term, Provider shall, unless
-----------
otherwise directed by the Policy Board pursuant to (S)3.2(c), operate its dental
practice under the name "Park Dental", including without limitation using all
related marks and logos as are licensed to Provider pursuant to (S)4.17, above,
and filing an assumed or fictitious name application with the Minnesota
Secretary of State or other appropriate governmental agency; provided that
Provider shall, immediately upon the expiration of the Term, abstain from using
such name, marks, and logos and shall take such steps as are necessary to
terminate such applications and Provider's rights thereunder.
ARTICLE VI. CONFIDENTIALITY
---------------
(S)6.1 Confidential and Proprietary Information. Neither Party shall, in
----------------------------------------
any manner or at any time, directly or indirectly, disclose any of the
Confidential Information of the other Party to any person, firm, association,
organization, or entity, or use, or permit or assist any person, firm,
association, organization, or entity to use any such Confidential Information,
excepting only: (a) disclosures (i) required by law, as reasonably determined by
the disclosing Party or its legal counsel, or (ii) made on a confidential basis
to the disclosing Party's shareholders, directors, officers, employees (limited
to those who need to know such Confidential Information), and legal, accounting,
and other professional advisors (collectively, the "Permitted Recipients"); or
(b) use of such Confidential Information by Permitted Recipients in connection
with this agreement; provided that each Party shall (i) make its Permitted
Recipients aware of the requirements of this agreement, (ii) take reasonable
steps to prohibit disclosure of such Confidential Information by any Permitted
Recipient to any other person or entity except another Permitted Recipient,
including without limitation taking such steps as that Party customarily takes
to protect its own Confidential Information, and (iii) be responsible and liable
for any disclosure or use of such Confidential Information by any of its
Permitted Recipients, except disclosures or uses permitted by this agreement.
(S)6.2 Use of Practice Statistics. Notwithstanding (S)6.1, above, but
--------------------------
subject to the restrictions of this section and applicable law, Service Company
may: (a) share with other
17
professional corporations, associations, dental practices, or dental care
delivery entities the practice statistics of Provider, including utilization
review data, quality assurance data, cost data, outcomes data, or other practice
data, provided that such information shall only be disclosed to (i) affiliates
of Service Company, (ii) other dental groups with whom Service Company has a
management relationship, (iii) managed care dental benefit providers and other
third party payors for the purpose of obtaining or maintaining third party payor
contracts, (iv) financial analysts and underwriters, (v) employers and employee
benefit associations, (vi) quality assurance and accrediting organizations, or
(vii) financial institutions; and (b) disclose all practice-related information
necessary or desirable in connection with any public or private offering of any
security of Service Company. In addition, Service Company may disclose
practice-related information and data in connection with any survey,
presentation, published material, study, or research project which Service
Company deems appropriate for the purpose of gaining insight into existing and
changing patterns in the organization and delivery of Dental Care and related
issues. In no event will any such data disclose or divulge the identity of any
patient or, to the extent reasonably practicable, any dentist.
ARTICLE VII. FINANCIAL ARRANGEMENTS
----------------------
(S)7.1 Clinic Expense Reimbursement. Service Company shall be reimbursed
----------------------------
for the amount of all Clinic Expenses incurred by Service Company.
(S)7.2 Repayment of Advances. Service Company shall be reimbursed for any
---------------------
and all amounts advanced to Provider by Service Company.
(S)7.3 Fees. Provider and Service Company acknowledge and agree that the
----
compensation set forth in this Article is being paid to Service Company in
consideration of the substantial commitment being made by Service Company
hereunder and that such fees are fair and reasonable in all respects in
consideration of (i) the services performed by Service Company hereunder and
(ii) the capital being made available by Service Company. Service Company shall
be paid the following service fees:
(a) Service Fee. Service Company shall receive an annual Service Fee
-----------
equal to [*] or such other greater amount as may be agreed upon by the Parties,
payable in twelve equal monthly installments, subject to adjustment pursuant to
(S)7.4(a), below; and
(b) Performance Fee. Service Company shall receive a Performance Fee,
---------------
payable monthly, equal to the amount, if any, by which Adjusted Gross Revenue
for the applicable month exceeds the sum of Clinic Expenses, Provider Expenses,
and the Service Fee for the applicable month, subject to adjustment pursuant to
(S)7.4(b), below.
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
18
(S)7.4 Adjustments to Fees.
-------------------
(a) If the sum of Clinic Expenses and Provider Expenses for any
calendar year during the Term exceeds the Base Level, then the
Service Fee for such year shall be increased by the lesser of
(i) [*] percent of Adjusted Gross Revenue for such year or (ii)
the amount by which the sum of Clinic Expenses and Provider
Expenses for such year exceeds the Base Level (the "Service Fee
Adjustment").
(b) If Adjusted Gross Revenue less the sum of Clinic Expenses and
Provider Expenses for any calendar year during the Term exceeds
[*]% of Adjusted Gross Revenue for such year, then the
Performance Fee for such year shall be reduced by an amount
equal to [*]% of such excess.
Each adjustment, if any, under this (S)7.4 shall be calculated and paid not
later than 60 days following the end of the applicable calendar year.
(S)7.5 Reasonable Value. Payment of the Service Fee or Performance Fee is
----------------
not intended to be and shall not be interpreted or applied as permitting Service
Company to share in Provider's fee for Dental Care or any other services, but is
acknowledged as the Parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management, and other items and services furnished by Service Company
pursuant to this agreement, considering the nature and volume of the services
required and the risks assumed by Service Company. Provider and Service Company
acknowledge that: (a) Service Company's administrative expertise will
contribute great value to Provider's performance; (b) Service Company will incur
substantial costs and business risks in arranging for Provider's use of each
Clinic and in providing the equipment, support services, personnel, marketing,
office space, management, administration, and other items and services that are
the subject matter of this agreement; and (c) certain of such costs and expenses
can vary to a considerable degree according to the extent of Provider's business
and services. It is the intent of the Parties that the Service Fee and
Performance Fee reasonably compensate Service Company for the value to Provider
of Service Company's administrative expertise, given the considerable business
risk to Service Company in providing the items and services that are the subject
of this agreement.
(S)7.6 Payment. The amounts to be paid to Service Company under this
-------
Article shall be calculated by Service Company on the accrual basis of
accounting and paid monthly. To facilitate the payments due to Service Company
under this Article, Provider hereby expressly authorizes Service Company to
make withdrawals of such amounts from the Provider Account during the Term in
accordance with (S)4.12(b), and after termination as provided in (S)8.3.
(S)7.7 Accounts Receivable. To assure that Provider receives the entire
-------------------
amount of professional fees for its services and to assist Provider in
maintaining reasonable cash flow for the payment of Clinic Expenses, Service
Company may, during the Term, purchase, with recourse to Provider for the amount
of the purchase, the accounts receivable of Provider arising during the previous
month by transferring the amount set forth below into the Provider Account. The
consideration for the purchase shall be an amount equal to the Adjusted Gross
Revenue
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
19
recorded each month. Service Company shall be entitled to offset Clinic Expense
reimbursement plus all fees and advances due to Service Company under this
Article against the amount payable for the accounts receivable. Although it is
the intention of the Parties that Service Company purchase and thereby become
the owner of the accounts receivable of Provider, in the event such purchase
shall be ineffective for any reason, Provider hereby grants to Service Company a
security interest in the accounts receivable, and Provider shall cooperate with
Service Company and execute all documents which may be reasonably requested by
Service Company in connection with such security interest. All collections in
respect of such accounts receivable purchased by Service Company shall be
received by Provider as the agent of Service Company and shall be endorsed to
Service Company and deposited in a bank account at a bank designated by Service
Company. To the extent Provider comes into possession of any payments in
respect of such accounts receivable, Provider shall direct such payments to
Service Company for deposit in bank accounts designated by Service Company.
ARTICLE VIII. TERM AND TERMINATION
--------------------
(S)8.1 Initial and Renewal Term. The Term of this agreement shall be for
------------------------
an initial period of 40 years beginning on the date of this agreement, and shall
renew automatically for successive five-year periods thereafter unless and until
either Party gives notice to the other Party at least 120 days prior to the
expiration of the then-current term of its intent to terminate this agreement at
the end of the then-current term or unless otherwise terminated as provided in
(S)8.2 of this agreement.
(S)8.2 Termination.
-----------
(a) Termination By Service Company. Service Company may terminate this
------------------------------
agreement immediately upon notice to Provider upon the occurrence of any one of
the following events:
(i) The dissolution of Provider;
(ii) Provider admits in writing its inability to pay generally its
debts as they become due or makes an assignment for the benefit of creditors;
(iii) A receiver, trustee, liquidator, or conservator is appointed
for Provider or to take possession of all or substantially all of Provider's
property or a petition for insolvency, dissolution, liquidation, or
reorganization, or order for relief in which Provider is named as debtor, is
filed by, against, or with respect to Provider pursuant to any federal or state
statute, regulation, or law for the protection of debtors, and, with respect to
any such appointment or filing, Provider fails to secure a stay or discharge
thereof within 45 days after such appointment or filing;
(iv) Provider fails to pay when due any payment to be made by
Provider under this agreement, which failure continues for 10 days after notice
is given by Service Company
20
to Provider thereof, provided that such failure is not directly attributable to
Service Company's failure to apply available funds in the Provider Account
according to (S)4.12(b); or
(v) Provider fails to comply with or perform any of its other
material duties or obligations under this agreement, which failure continues for
30 days after notice is given by Service Company to Provider thereof, or if
because of the nature of such failure it cannot reasonably be corrected within
such 30 day period, failure by Provider to commence such correction promptly
following its receipt of notice from Service Company and thereafter to
expeditiously and continuously prosecute the correction to completion.
(b) Termination By Provider. Provider may terminate this agreement
-----------------------
immediately upon notice to Service Company upon the occurrence of any of the
following events:
(i) A receiver, trustee, liquidator, or conservator is appointed
for Service Company or to take possession of all or substantially all of Service
Company's property or a petition for insolvency, dissolution, liquidation, or
reorganization, or order for relief in which Service Company is named as debtor,
is filed by, against, or with respect to Service Company pursuant to any federal
or state statute, regulation, or law for the protection of debtors, and, with
respect to any such appointment or filing, Service Company fails to secure a
stay or discharge thereof within 45 days after such appointment or filing;
(ii) Service Company fails to comply with or perform any of its
material duties or obligations under this agreement, which failure continues for
30 days after notice is given by Provider to Service Company thereof, or if
because of the nature of such failure it cannot reasonably be corrected within
such 30 day period, failure by Service Company to commence such correction
promptly following its receipt of notice from Provider and thereafter to
expeditiously and continuously prosecute the correction to completion; or
(iii) A court of competent jurisdiction makes a final determination
that Service Company has materially breached a fiduciary duty owed to Provider.
Notwithstanding the foregoing, any termination by Provider under this
section shall require the affirmative vote of three-fourths of the then-
outstanding shares of Provider entitled to vote on such a matter and Provider
shall, upon request by Service Company, provide evidence reasonably satisfactory
to Service Company of such vote.
(c) Termination by Agreement. Provider and Service Company may mutually
------------------------
agree to terminate this agreement at any time, such agreement to be in writing
and signed by both Parties.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there is a change in any federal, state, or local statute, law, regulation,
legislation, rule, policy, or general instruction, a change in any third party
reimbursement system, or a ruling, judgment, or decree by any court, agency, or
other governing body having jurisdiction over either Party (hereafter
21
in this clause (d), a "ruling") which materially and adversely affects, or is
reasonably likely to affect, the manner in which either Party is to perform or
be compensated for its services under this agreement or which shall make this
agreement unlawful, the Parties shall immediately use their best efforts to
enter into a new service arrangement or basis for compensation for the services
furnished pursuant to this agreement that complies with that change or ruling
and approximates as closely as possible the economic position of the Parties
prior to such change or ruling.
If the Parties are unable to reach a new agreement within a
reasonable period of time following the date upon which it becomes reasonably
certain that such change will arise or ruling will be given, then either Party
may submit the issue to arbitration which shall be binding on the parties and
subject to the then-applicable Commercial Arbitration Rules of the American
Arbitration Association. In any such arbitration, the arbitrators shall be
consist of a panel of three arbitrators, which shall act by majority vote and
which shall consist of one arbitrator selected by the Party on one side of the
issue subject to the arbitration, one arbitrator selected by the Party on the
other side of the issue, and a third arbitrator selected by the two arbitrators
so selected, who shall be either a certified public accountant or an attorney at
law licensed to practice in the State of Minnesota and who shall act as chairman
of the arbitration panel; provided that if the Party on one side of the issue
selects its arbitrator for the panel and the other Party fails to so select its
arbitrator within 10 business days after being requested by the first Party to
do so, then the sole arbitrator shall be the arbitrator selected by the first
Party.
All costs and expenses of arbitration shall be borne by the Parties
as determined by the arbitrator or arbitration panel, except that the fees of
any arbitrator on an arbitration panel who is selected individually by a Party
shall be borne separately by the Party appointing him; provided that if one
Party fails to select an arbitrator for a panel, and the sole arbitrator is the
arbitrator selected by the other Party, then the fees of that arbitrator shall
be borne by the Parties as determined by that arbitrator.
(S)8.3 Effects of Termination. Upon termination of this agreement as
----------------------
herein provided, neither Party shall have any further obligations under this
agreement, except for: (a) obligations accruing prior to the date of
termination, including without limitation payment of the amounts set forth in
Article VII relating to services provided prior to the termination of this
agreement; (b) obligations set forth in this agreement that expressly extend
beyond the Term, including without limitation indemnities and noncompetition
provisions, which provisions shall survive the expiration or termination of this
agreement; (c) the obligations of each party set forth in Article VI; and (d)
the obligation of Provider described in (S)8.4. Provider specifically
acknowledges and agrees that Service Company shall continue to collect and
receive on behalf of Provider all cash collections from accounts receivable in
existence at the time this agreement is terminated (which have not otherwise
been purchased by Service Company pursuant to (S)7.7), it being understood that
such cash collections will be applied in accordance with (S)4.12(b), above,
until Service Company is compensated for the services rendered and reimbursed
for the expenditures made by it under this agreement up to the date of such
termination. Upon the expiration or termination of this agreement for any
reason or cause whatsoever, Service Company shall
22
surrender to Provider all books and records pertaining to Provider's dental
practice; provided that Service Company may retain copies of such documents to
the extent reasonably necessary for Service Company to complete its post-
termination obligations and activities under this agreement.
(S)8.4 Purchase Obligation. Upon termination of this agreement for any
-------------------
reason, Provider shall, at Service Company's option:
(a) Purchase from Service Company at book value the intangible assets,
deferred charges, goodwill, and all other amounts on the books of the Service
Company relating to this agreement or the items or services provided by Service
Company pursuant to this agreement, including without limitation the amount, if
any, for the covenants described in (S)5.7, above, as adjusted through the last
day of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of all such
amounts;
(b) Purchase from Service Company any real estate owned by Service
Company and used as a Clinic at the greater of the appraised fair market value
thereof or the then book value thereof;
(c) Purchase, at the greater of the appraised fair market value or the
then book value, all improvements, additions, or leasehold improvements that
have been made by Service Company at any Clinic and that relate to the
performance of Service Company's obligations under this agreement;
(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Service Company and that relate to the performance of Service
Company's obligations under this agreement or the properties leased or subleased
by Service Company in connection with its obligations under this agreement; and
(e) Purchase from Service Company, at the greater of the appraised fair
market value or the then book value, all of the equipment then being supplied by
Service Company pursuant to Service Company's obligations under this agreement,
and all other assets, including inventory and supplies, tangibles and
intangibles, set forth on the books of Service Company as adjusted through the
last day of the month most recently ended prior to the date of such termination
in accordance with GAAP to reflect operations of each Clinic, depreciation,
amortization, and other adjustments of assets shown on the books of the Service
Company.
For purposes of subsection (b), above, the appraised value shall be
determined by an appraiser mutually agreed upon by the Parties. In the event
the Parties are unable to agree upon an appraiser within 10 days following the
date upon which either Party requests the other Party to agree to an appraiser,
then each Party shall appoint an appraiser, who shall in turn select a third
appraiser who shall serve as the appraiser hereunder. In the event either Party
fails to select an appraiser within 15 days of the selection of an appraiser by
the other Party, the
23
appraiser selected by the other Party shall serve as the appraiser hereunder.
The determination of the appraised value of the assets identified in subsection
(b), above, by the appraiser selected hereunder shall be binding on both
Parties.
(S)8.5 Closing of Purchase. If Provider purchases assets pursuant to
-------------------
(S)8.4, Provider shall pay cash for the purchased assets; provided that the
amount of the purchase price allocable to an asset shall be reduced by the
amount of debt and liabilities of Service Company, if any, relating directly to
that asset which are assumed by Provider in connection with such purchase.
Provider and any dentist associated with Provider shall execute such documents
as may be required to assume the liabilities set forth in (S)8.4(d) and to
remove Service Company from any liability with respect to such purchased asset
and with respect to any property leased or subleased by Service Company. The
closing date for the purchase shall be determined by the Parties, but shall in
no event occur later than 180 days from the date of the notice of termination.
Provider shall be released from the covenants described in (S)5.7, above, upon
the successful consummation of such closing.
Notwithstanding the foregoing, Provider may, at its option, pay all or a
portion of the purchase price at the closing in shares of common stock of Parent
("Shares") for which Provider shall receive, as a credit to the purchase price,
an amount equal to the number of Shares transferred to Service Company by
Provider at the closing multiplied by the per Share fair market value (defined
below); provided that each Share transferred to Service Company is free and
clear of all liens, security interests, encumbrances, pledges, charges, claims,
voting trusts and restrictions on transfer of any nature whatsoever, except
restrictions on transfer imposed by or pursuant to federal and state securities
laws and such other restrictions as were expressly required by Parent in
connection with the acquisition of Service Company by Parent concurrently with
the execution of this agreement. For purposes of this section, the "per Share
fair market value" shall mean, as of any given date, the (i) last reported sale
price on the New York Stock Exchange on the most recent previous trading day,
(ii) last reported sale price on the NASDAQ National Market System on the most
recent previous trading day, (iii) mean between the high and low bid and ask
prices, as reported by the National Association of Securities Dealers, Inc. on
the most recent previous trading day, (iv) last reported sale price on any other
stock exchange on which the Shares are listed on the most recent previous
trading day, whichever is applicable, or (v) if none of the foregoing is
applicable, then the per Share fair market value of the Shares shall be the
value determined by the Board of Directors of Parent, in its discretion, based
upon the then-current Share value assigned by the Board of Directors of Parent
in connection with Parent's other activities; provided that, if Provider
disagrees with the determination of Parent's Board of Directors as to such
value, the per Share fair market value shall be determined by:
(A) Agreement between Service Company and Provider, if they are
able to agree upon a value within ten business days after being requested
to so agree; or, if not,
(B) An appraiser selected by agreement between Service Company and
Provider, if they are able to agree upon an appraiser within ten business
days after requested to so agree; or, if not,
24
(C) The majority vote by an appraisal board consisting of three
appraisers, one member appointed by each of Service Company and Provider
and the third member appointed by the first two members so appointed who
shall act as chairman of the appraisal board, provided that in the event
either Party fails to so appoint its appointee to the appraisal board
within ten business days after being requested to do so by the other Party,
then the appraiser appointed by the requesting Party shall be the sole
appraiser.
ARTICLE IX. GENERAL
-------
(S)9.1 Administrative Services Only. Nothing in this agreement is
----------------------------
intended or shall be construed to allow Service Company to exercise control or
direction over the manner or method by which Provider and its dentists perform
Dental Care or other professional dental care services. The rendition of all
Dental Care shall be the sole responsibility of Provider and its dentists, and
Service Company shall not interfere in any manner or to any extent therewith.
Nothing contained in this agreement shall be construed to permit Service Company
to engage in the practice of dentistry, it being the sole intention of the
Parties hereto that the services to be rendered to Provider by Service Company
are solely for the purpose of providing non-dental administrative services to
Provider so as to enable Provider to devote its full time and energies to the
professional conduct of its dental practice and provision of Dental Care to its
patients and not to administration, or practice management.
(S)9.2 Relationship of Parties. The relationship of the Parties is and
-----------------------
shall be that of independent contractors, and nothing in this agreement is
intended, and nothing shall be construed to create an employer/employee,
partnership, or joint venture relationship between the Parties, or to allow
either to exercise control or direction over the manner or method by which the
other performs the services that are the subject matter of this agreement;
provided always that the services to be provided hereunder shall be furnished in
a manner consistent with the standards governing such services and the
provisions of this agreement.
(S)9.3 Notices. Any notice or other communication required or desired to
-------
be given to either Party shall be in writing and shall be deemed given when
deposited in the United States mail, first-class postage prepaid, addressed:
(a) If to Service Company
25
PDHC, Ltd.
c/o American Dental Partners, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
and Chief Executive Officer
and
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to Provider
PDG, P.A.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
With a copy to:
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A.
1100 International Center
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Any Party may change the address to which notices and other communications
are to be given by giving the other Parties notice of such change.
(S)9.4 Execution of Documents. Each Party shall execute, acknowledge or
----------------------
verify, and deliver any and all documents, and take any and all other actions,
which from time to time may be reasonably requested by any other Party to carry
out the purposes and intent of this agreement.
(S)9.5 Governing Law. All questions concerning the validity, intention,
-------------
or meaning of this agreement or relating to the rights and obligations of the
Parties with respect to performance under this agreement shall be construed and
resolved under the laws of Minnesota, without reference to conflict of law
principles.
26
(S)9.6 Severability. The intention of the Parties is to comply fully with
------------
all applicable laws and public policies, and this agreement shall be construed
consistently with all laws and public policies to the extent possible. If and
to the extent that any court of competent jurisdiction determines that it is
impossible to construe any provision of this agreement consistently with any law
or public policy and consequently holds that provision is invalid, such holding
shall in no way affect the validity of the other provisions of this agreement,
which shall remain in full force and effect. With respect to any provision in
this agreement finally determined by such a court to be invalid or
unenforceable, such court shall have jurisdiction to reform this agreement
(consistent with the intent of the Parties) to the extent necessary to make such
provision valid and enforceable, and, as reformed, such provision shall be
binding on the Parties.
(S)9.7 Setoff. Notwithstanding any provision of this agreement to the
------
contrary, Service Company shall have the right from time to time to setoff any
amounts owed by Service Company to Provider under this agreement against any
amounts owed by Provider to Service Company, whether pursuant to this agreement
or otherwise.
(S)9.8 Remedies. All rights and remedies of each Party under this
--------
agreement are cumulative and in addition to all other rights and remedies which
may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
Each Party hereby acknowledges that: (a) the provisions of (S)(S)5.7 and
6.1 of this agreement are fundamental for the protection of the other Party's
legitimate business interests; (b) such provisions are reasonable and
appropriate in all respects; and (c) in the event it violates any such
provisions, the other Party would suffer irreparable harm and its remedies at
law would be inadequate. Accordingly, in the event either Party violates or
attempts to violate any such provisions, the other Party shall be entitled to a
temporary restraining order, temporary and permanent injunctions, specific
performance, and other equitable relief without any showing of irreparable harm
or damage or the posting of any bond, in addition to any other rights or
remedies which may then be available to the other Party.
(S)9.9 Non-waiver. No failure by any Party to insist upon strict
----------
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other Party shall affect, or
constitute a waiver of, the first Party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the Parties at variance with any provision
of this agreement affect or constitute a waiver of, any Party's right to demand
strict compliance with all provisions of this agreement.
(S)9.10 Indemnification. Each Party (the "Indemnifying Party") shall
---------------
indemnify and hold harmless the other Party and its shareholders, directors,
officers, employees, agents, representatives, and affiliates (the "Indemnified
Parties") from and against any and all losses, liabilities, damages, demands,
claims, suits, actions, judgments, assessments, costs and
27
expenses, including without limitation interest, penalties, attorneys' fees, any
and all expenses incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively, "Damages"),
asserted against, imposed upon, or incurred or suffered by the Indemnified
Parties as a result of or arising from: (i) any failure by the Indemnifying
Party to perform and observe fully all obligations and conditions to be
performed or observed by the Indemnifying Party under this agreement; or (ii)
the acts or omissions of the Indemnifying Party or its employees, contractors,
or other agents or representatives.
(S)9.11 No Third Party Benefit. This agreement is intended for the
----------------------
exclusive benefit of the Parties and their respective successors and assigns,
and nothing contained in this agreement shall be construed as creating any
rights or benefits in or to any third party.
(S)9.12 Captions. The captions of the various sections of this agreement
--------
are not part of the context of this agreement, are only labels to assist in
locating and reading those sections, and shall be ignored in construing this
agreement.
(S)9.13 Genders and Numbers. When permitted by the context, each pronoun
-------------------
used in this agreement includes the same pronoun in other genders or numbers and
each noun used in this agreement includes the same noun in other numbers.
(S)9.14 Complete Agreement. This document (including its exhibits and
------------------
all other documents referred to herein, all of which are hereby incorporated
herein by reference) contains the entire agreement among the Parties and
supersedes all prior or contemporaneous discussions, negotiations,
representations, or agreements relating to the subject matter of this agreement.
No changes to this agreement shall be made or be binding upon any Party unless
made in writing and signed by each Party to this agreement.
(S)9.15 Counterparts. This agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
(S)9.16 Assignment. Provider may not assign this agreement without the
----------
prior written consent of Service Company, which consent may be withheld for any
reason. The sale, transfer, pledge, or assignment of any of the shares of
Provider held by any shareholder of Provider, the issuance by Provider of voting
shares to any other person, or any combination of such transactions within a
period of two years, such that the existing shareholders in Provider fail to
maintain a majority of the voting interest in Provider shall be deemed an
attempted assignment by Provider, and shall be null and void unless consented to
in writing by Service Company prior to any such transfer or issuance. Any
breach of this provision, whether or not void or voidable, shall constitute a
material breach of this agreement, and in the event of such breach, Service
Company may terminate this agreement upon 24 hours notice to Provider. Service
Company shall have the right to (i) assign its rights and obligations hereunder
to any third party and (ii) collaterally assign its interest in this agreement
and its right to collect the amounts set forth in Article VII hereunder to any
financial institution or other third party without the consent of Provider.
28
(S)9.17 Successors. Subject to (S)9.16, above, this agreement shall be
----------
binding upon, inure to the benefit of, and be enforceable by and against the
successors and assigns of each Party.
(S)9.18 Force Majeure. Neither Party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either Party's employees, or any other similar cause
beyond the reasonable control of either Party unless such delay or failure in
performance is expressly addressed elsewhere in this agreement.
PDG, P.A.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
President
PDHC, LTD.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board and
Chief Executive Officer
29
INDEX TO EXHIBITS
-----------------
Exhibit A Definitions
Exhibit B [Intentionally Left Blank]
Exhibit C Five-Year Employment Agreement
Exhibit D Standard Employment Agreement
Exhibit E List of Current PDHC Shareholders to be Retained by Provider
EXHIBIT A
---------
DEFINITIONS
-----------
Adjusted Gross Revenue. The term "Adjusted Gross Revenue" shall mean Gross
----------------------
Revenue less Adjustments.
Adjustments. The term "Adjustments" shall mean all adjustments on the
-----------
accrual basis for (i) third party payor contractual allowances, adjustments,
discounts, professional courtesies, (ii) uncollectible accounts and related
expenses, and (iii) other activities that do not to result in collectible
charges.
Ancillary Revenue. The term "Ancillary Revenue" shall mean all other
-----------------
revenue actually recorded each month that is not Professional Service Revenue.
Base Level. The term "Base Level" shall mean an amount equal to [*] of
----------
Adjusted Gross Revenue or such greater percentage of Adjusted Gross Revenue as
may be set forth in the Budget from time to time.
Budget. The term "Budget" shall mean an operating budget and capital
------
expenditure budget for each calendar year as prepared by Service Company, in
consultation with Provider, and approved by each of the Policy Board and Parent.
Capitation Revenue. The term "Capitation Revenue" shall mean all revenue
------------------
recorded under GAAP from managed care organizations or third party payors where
such revenue is recorded periodically on a per member basis for the partial or
total dental needs of an enrolled patient.
Clinic. The term "Clinic" shall mean any of the facilities, including
------
satellite facilities, that Service Company shall own, lease or otherwise procure
and provide for the use of Provider.
Clinic Expense. The term "Clinic Expense" shall mean all operating and
--------------
nonoperating expenses incurred by Service Company or Parent in the provision of
services to Provider and such expenses incurred by Provider which are expressly
identified in this agreement as Clinic Expense. Clinic Expense shall not
include any state or federal income tax, any expenses related to any Dental
Assets or the maintenance or protection of the same, or any other expense
reasonably designated by Service Company as a Provider Expense. Clinic Expense
shall not include amortization of goodwill and noncompete covenants arising as a
result of the acquisition of Service Company by Parent concurrently with the
execution of this agreement, but shall include amortization of other intangible
assets obtained in that transaction. Without limiting the foregoing, Clinic
Expense shall include:
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
i
(a) The salaries, benefits, and other direct costs of all employees of
Service Company at a Clinic, but not the salaries, benefits, or other direct
costs of the dentists;
(b) The direct cost of any employee or consultant that provides services at
or in connection with a Clinic for improved clinic performance, such as
management, billing and collections, business office consultation, accounting
and legal services, but only when such services are coordinated by Service
Company;
(c) Reasonable recruitment costs and out-of-pocket expenses of Service
Company or Provider associated with the recruitment of additional dentist
employees of Provider;
(d) Dental malpractice liability insurance expenses for dentists, Service
Company employees, and non-dentist employees and comprehensive and general
liability insurance covering each Clinic and employees of Provider and Service
Company at each Clinic;
(e) The cost of laboratory services;
(f) The cost of dental supplies (including but not limited to products,
substances, items, or dental devices), and office supplies;
(g) The expense of using, leasing, purchasing or otherwise procuring
Clinics and related equipment, including utilities, depreciation, and repairs
and maintenance, provided that such expense shall not include the cost of
acquiring goodwill, noncompete covenants, or other intangible assets in
connection with such procurement;
(h) Personal property and intangible taxes assessed against Service
Company's assets which are provided or otherwise employed by Service Company for
the benefit of Provider;
(i) The reasonable travel expenses (except for the corporate staff of
Service Company and Parent) associated with attending meetings, conferences, or
seminars to benefit Provider;
(j) The cost of capital (whether as actual interest on indebtedness
incurred on behalf of Provider or as reasonable imputed interest on capital
advanced by Service Company or Parent) to finance or refinance obligations of
Provider, purchase dental and non-dental equipment, or finance new ventures of
Provider (interest expense will be charged for funds borrowed from outside
sources as well as from Parent; in the latter case, charges will be computed at
a floating rate that is equal to the current blended borrowing rate in effect
for actual and available outside borrowings of Parent; and such rate will be
computed as the sum of interest and related costs divided by the related total
of all borrowings), but specifically excluding any financing incurred by Parent
relating to the acquisition of Service Company by Parent concurrently with the
execution of this agreement;
(k) Other expenses incurred by Service Company or Parent in carrying out
its obligations under this agreement in accordance with the policies and budgets
established by the Policy Board, including without limitation the write-off of
any tangible or intangible assets on the balance sheet of Service Company or any
portion thereof other than costs incurred in
ii
connection with the execution of this agreement and the issuance by Parent of
stock options to Provider or its dentists;
(l) Any tax assessed against Service Company in connection with the
services provided by Service Company hereunder; and
(m) Any other cost or expense designated as a Clinic Expense pursuant
to this agreement.
Confidential Information. The term "Confidential Information" shall mean,
------------------------
with respect to a Party, all trade secrets, proprietary data, and other
information (whether written or oral) of a confidential nature relating directly
or indirectly to that Party or its business, including without limitation all
business management, marketing, and economic studies and methods, patient lists,
proprietary forms, marketing data, fee schedules, customer lists, financial,
tax, accounting, and other information regarding business operations or
structure, business plans, ideas, concepts, policies, and procedures, and any
other information which that Party is obligated to treat as confidential
pursuant to any law, agreement, or course of dealing by which that Party is
bound, whether or not such Confidential Information is disclosed or otherwise
made available pursuant to this agreement. Confidential Information shall also
include the terms and provisions of this agreement and any transactions or
documents executed by the parties pursuant to this agreement. Confidential
Information shall not include any information which (i) is or becomes known or
available to the public and did not become so known through the breach of this
agreement by either Party, (ii) has been lawfully acquired from a third party
without any breach of any confidentiality restriction, or (iii) is already in
the possession of the receiving Party at the time it was disclosed to the
receiving Party by the disclosing Party.
Dental Assets. The term "Dental Assets" shall mean the following assets of
-------------
Provider:
(a) All of Provider's right, title and interest in, to or under, or
possession of, all drugs, pharmaceuticals, products, substances, items or
devices whose purchase, possession, maintenance, administration, prescription or
security requires the authorization or order of a Dental Care Professional or
requires a permit, registration, certification or any other governmental
authorization held by a Dental Care Professional as specified under any federal
or state law, or both;
(b) All of Provider's right, title and interest in and to records of
identity, diagnosis, evaluation or treatment of patients;
(c) All of Provider's right, title and interest in, to or under
insurance policies covering or relating to dental malpractice;
(d) The name of Provider;
(e) All franchises, licenses, permits, certificates, approvals and
other governmental authorizations necessary or desirable to own and operate any
of the other Dental Assets, a complete and correct list of which is set forth on
Schedule 1;
iii
(f) All of Provider's right, title and interest in, to or under and
contract or agreement that requires performance by a licensed dental care
provider under federal or applicable state law.
Dental Care. The term "Dental Care" shall mean such intra-oral diagnostic
-----------
and therapeutic procedures, operations, and services as are included under the
definition of the "practice of dentistry" under the laws and regulations of the
state in which such procedures, operations, and services are performed and which
are provided by Provider to its patients through Provider's dentists and other
professional dental care personnel operating under the supervision of Provider's
dentists, including but not limited to the practice of general dentistry,
endodontics, periodontics, orthodontics, prosthodontics, pediatric dental care,
and oral surgery, and all dental care associated with any of the foregoing.
Dental Care Professional. The term "Dental Care Professional" shall mean
------------------------
any individual holding a current, unrestricted license issued by the appropriate
dental licensing board in the state in which the Dental Care Professional
renders Dental Care, which permits such individual to provide Dental Care,
including without limitation dentists (as that term is defined in (S)2.5) and
denturists, dental assistants, and hygienists.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
----
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and the Securities
and Exchange Commission or in such other statements by such other entity or
other practices and procedures as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of the determination.
Gross Revenue. The term "Gross Revenue" shall mean the sum of all
-------------
Professional Service Revenue and Ancillary Revenue before Adjustments.
Ordinary Dental Supplies. The term "Ordinary Dental Supplies" shall mean
------------------------
all products, substances, items, or devices which (i) are necessary or
appropriate for Provider's provision of Dental Care, and (ii) are not Special
Dental Supplies.
Parent. The term "Parent" shall mean American Dental Partners, Inc., a
------
Delaware corporation.
Performance Fee. The term "Performance Fee" shall mean the fee paid to
---------------
Service Company by Provider as described in (S)7.3(b).
Practice Territory. The term "Practice Territory" shall mean the
------------------
geographic area within which Provider provides Dental Care, which geographic
area shall include all of the following territories: (a) with respect to each
Clinic which offers general dentistry services only, the geographic area within
a radius of 30 miles of such Clinic, and (b) with respect to each Clinic which
offers specialty dental services, the geographic area within a radius of 50
miles of such Clinic.
iv
Professional Service Revenue. The term "Professional Service Revenue"
----------------------------
shall mean the sum of all (i) professional fees actually recorded each month on
an accrual basis under GAAP as a result of the Dental Care rendered by the
Dental Care Professional retained by Provider, and (ii) Capitation Revenue.
Provider Account. The term "Provider Account" shall mean the bank account
----------------
of Provider established by Provider promptly following the execution of this
agreement at a financial institution reasonably acceptable to Service Company,
which account shall be administered by Service Company according to (S)(S)4.11
and 4.12 of this agreement.
Provider Consent. The term "Provider Consent" shall mean the consent
----------------
granted by Provider's representatives (or either representative) who serve on
the Policy Board. When any provision of this agreement requires Provider
Consent, Provider Consent shall not be unreasonably withheld and shall be
binding on Provider.
Provider Expense. The term "Provider Expense" shall mean an expense
----------------
incurred by the Service Company or Provider and for which Provider, and not the
Service Company, is financially liable. Provider Expense shall include dentist
(as defined in (S)2.5) salaries, benefits (which includes workers' compensation
coverage), and other direct costs related to the dentists employed or otherwise
retained by Provider for the provision of its Dental Care (including
professional dues, subscriptions, continuing dental education expenses, and
travel costs for continuing dental education or other business travel, but
excluding business travel requested by Service Company, which shall be a Clinic
Expense), together with any expenses related to any Dental Assets or the
maintenance and protection of the same and such other costs and expenses
designated as Provider Expense in or pursuant to this agreement (including
without limitation the amounts described in (S)4.13(d)(ii)). In the event
Provider incurs consulting, accounting, legal or other similar fees without
Service Company's approval of such engagement through Service Company, all fees
and expenses so incurred shall be Provider Expenses. For purposes of
calculating the Performance Fee, Provider Expenses shall equal [*] of Adjusted
Gross Revenues or such other percentage of Adjusted Gross Revenues as may be set
forth in the Budget less an amount equal to the Service Fee Adjustment.
Representatives. The term "Representatives" shall mean a Party's officers,
---------------
directors, employees, and other agents or representatives, and attorneys,
accountants, and other professional advisors.
Service Company Consent. The term "Service Company Consent" shall mean the
-----------------------
consent granted by Service Company's representatives (or either representative)
who serve on the Policy Board. When any provision of this agreement requires
Service Company Consent, Service Company Consent shall not be unreasonably
withheld and shall be binding on Service Company.
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
v
Service Company Expense. The term "Service Company Expense" shall mean an
-----------------------
expense or cost incurred by Service Company or Parent and for which Service
Company or Parent, and not Provider, is financially liable. Service Company
Expense shall specifically include the costs of Service Company and Parent's
corporate personnel and the travel costs of such corporate personnel and shall
specifically exclude expenses incurred by Service Company or Parent that
directly benefit Provider or are otherwise incurred by Service Company or Parent
in providing services pursuant to this agreement.
Service Fee. The term "Service Fee" shall mean the fee paid to Service
-----------
Company by Provider as described in (S)7.3(a).
Services. The term "Services" shall mean the business, administrative, and
--------
management services to be provided for Provider by Service Company as set forth
in this agreement, including without limitation the provision of equipment,
supplies, support services, non-dentist personnel, office space, financial
recordkeeping and reporting, billing and collection and other business office
services. Services shall not include the provision of Dental Care to patients
of the Provider.
Special Dental Supplies. The term "Special Dental Supplies" shall mean all
-----------------------
products, substances, items or devices, the purchase, possession, maintenance,
administration, prescription or security of which requires the authorization or
order of a Dental Care Professional or requires a permit, registration,
certification or other governmental authorization held by a Dental Care
Professional as specified under any federal and/or state law.
Term. The term "Term" shall mean the initial term and any renewal periods
----
of this agreement as described in (S)8.1, subject to termination pursuant to
(S)8.2.
vi
FIRST AMENDMENT TO SERVICE AGREEMENT
------------------------------------
This amendment is made effective January 1, 1997, between PDHC, Ltd., a
Minnesota corporation ("Service Company"), and PDG, P.A., a Minnesota
professional association ("Provider").
Background Information
----------------------
A. Service Company and Provider are all of the parties (the "Parties")
to a Service Agreement dated November 12, 1996 (the "Agreement").
B. The Parties have prepared a revised Budget (as defined in the
Agreement) for 1997 and desire to amend the Agreement so that the Agreement will
be consistent with such Budget.
Agreement
---------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Provider Expenses. The percentage set forth in (S)4.13(a) of the
-----------------
Agreement is hereby changed to [*]. The percentage set forth in the last
sentence of the definition of "Provider Expense" contained in Exhibit A to the
Agreement ("Exhibit A") is hereby changed to [*].
(S)3. Service Fee. The Service Fee set forth in (S)7.3(a) is hereby
-----------
changed to [*].
(S)4. Adjustment to Fees. The first sentence in (S)7.4(b) of the
------------------
Agreement is hereby replaced with the following:
If Adjusted Gross Revenue less the sum of Clinic Expenses and
Provider Expenses for any calendar year during the Term exceeds
[*]% of Adjusted Gross Revenue for such year (or such other
percentage of Adjusted Gross Revenue for such year as may be set
forth in the Budget from time to time), then the Performance Fee
for such year shall be reduced by an amount equal to [*]% of such
excess.
(S)5. Base Level. The percentage set forth in the definition of "Base
----------
Level" in Exhibit A is hereby changed to [*].
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
1
(S)6. Construction. The modifications to the Agreement contained in this
------------
amendment shall apply prospectively only. In the event of any inconsistency
between the provisions of this amendment and the provisions of the Agreement,
the provisions of this amendment shall control; provided that this amendment
shall not be construed to limit the Parties' right to adjust amounts or
percentages pursuant to future Budgets as permitted by the Agreement. Except as
modified in this amendment, the Agreement shall continue in full force and
effect without change. This amendment shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective successors and
assigns of each Party.
(S)7. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
PDHC, LTD. PDG, P.A.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S
--------------------- -----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Chairman of the Board and President
Chief Executive Officer
-2-
SECOND AMENDMENT TO SERVICE AGREEMENT
-------------------------------------
This amendment is made effective January 1, 1998, between PDHC, Ltd., a
Minnesota corporation ("Service Company"), and PDG, P.A., a Minnesota
professional association ("Provider").
Background Information
----------------------
A. Service Company and Provider are all of the parties (the "Parties")
to a Service Agreement dated November 12, 1996, as amended January 1, 1997 (as
so amended, the "Agreement").
B. The Parties have prepared a revised Budget (as defined in the
Agreement) for 1998 and desire to amend the Agreement so that the Agreement will
be consistent with such Budget.
Agreement
---------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Provider Expenses. The percentage set forth in (S)4.13(a) of the
-----------------
Agreement and in the last sentence of the definition of "Provider Expense"
contained in Exhibit A to the Agreement ("Exhibit A") is hereby changed to [*].
(S)3. Service Fee. The Service Fee set forth in (S)7.3(a) is hereby
-----------
changed to [*].
(S)4. Adjustment to Fees. The first sentence in (S)7.4(b) of the
------------------
Agreement is hereby replaced with the following:
If Adjusted Gross Revenue less the sum of Clinic Expenses and
Provider Expenses for any calendar year during the Term exceeds
[*]% of Adjusted Gross Revenue for such year (or such other
percentage of Adjusted Gross Revenue for such year as may be agreed
upon in writing by the Parties from time to time), then the
Performance Fee for such year shall be reduced by an amount equal
to [*]% of such excess.
(S)5. Base Level. The percentage set forth in the definition of "Base
----------
Level" in Exhibit A is hereby changed to [*].
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
1
(S)6. Future Adjustments. Any or all of the percentages and amounts
------------------
described in (S)(S)2 through 5, inclusive, of this amendment may hereafter be
changed from time to time by the written agreement of the Parties, whether or
not such agreement is designated as an amendment to the Agreement.
(S)7. Construction. The modifications to the Agreement contained in this
------------
amendment shall apply prospectively only. In the event of any inconsistency
between the provisions of this amendment and the provisions of the Agreement,
the provisions of this amendment shall control; provided that this amendment
shall not be construed to limit the Parties' right to adjust amounts or
percentages pursuant to future Budgets as permitted by the Agreement. Except as
modified in this amendment, the Agreement shall continue in full force and
effect without change. This amendment shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective successors and
assigns of each Party.
(S)8. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
PDHC, LTD. PDG, P.A.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------- ----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Chairman of the Board and President
Chief Executive Officer
2