Exhibit 10.6
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
AND
XXXXXXX DENTAL CORPORATION,
A CALIFORNIA PROFESSIONAL CORPORATION
EFFECTIVE FEBRUARY 27, 2001
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.................................................. 1
Section 1.1 Act...................................................... 1
Section 1.2 Adjusted Gross Revenue................................... 1
Section 1.3 Adjustments.............................................. 1
Section 1.4 Ancillary Revenue........................................ 2
Section 1.5 Base Management Fee...................................... 2
Section 1.6 Budget................................................... 2
Section 1.7 Business Manager......................................... 2
Section 1.8 Business Manager Expense................................. 2
Section 1.9 Confidential Information................................. 2
Section 1.10 Center................................................... 2
Section 1.11 Dental Services.......................................... 2
Section 1.12 Dentist.................................................. 2
Section 1.13 GAAP..................................................... 2
Section 1.14 Management Fee........................................... 3
Section 1.15 Management Services...................................... 3
Section 1.16 Management Services Agreement............................ 3
Section 1.17 Office Expense........................................... 3
Section 1.18 PC....................................................... 4
Section 1.19 PC Account............................................... 4
Section 1.20 PC Expense............................................... 4
Section 1.21 Performance Fee.......................................... 4
Section 1.22 Practice Providers....................................... 4
Section 1.23 Practice Territory....................................... 4
Section 1.24 Professional Services Revenues........................... 4
Section 1.25 Representatives.......................................... 4
Section 1.26 Shareholder.............................................. 4
Section 1.27 State.................................................... 4
Section 1.28 Term..................................................... 4
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER............... 4
Section 2.1 Appointment.............................................. 4
Section 2.2 Authority................................................ 4
Section 2.3 Patient Referrals and Payments........................... 5
Section 2.4 Internal Management of PC................................ 5
Section 2.5 Practice of Dentistry.................................... 5
ARTICLE III. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER......... 5
Section 3.1 Centers and Equipment.................................... 5
Section 3.2 Dental Supplies.......................................... 6
Section 3.3 Support Services......................................... 6
Section 3.4 Quality Assurance, Risk Management and Utilization Review 6
Section 3.5 Licenses and Permits..................................... 6
Section 3.6 Personnel................................................ 7
Section 3.7 Contract Negotiations.................................... 7
Section 3.8 Billing and Collection................................... 7
Section 3.9 PC Account............................................... 8
Section 3.10 Fiscal Matters........................................... 8
Section 3.11 Reports and Records...................................... 10
Section 3.12 Recruitment of Practice Providers........................ 10
Section 3.13 Business Manager's Insurance............................. 10
Section 3.14 No Warranty.............................................. 10
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF PC........................ 10
Section 4.1 Organization and Operation............................... 10
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Section 4.2 PC Personnel............................................. 10
Section 4.3 Professional Standards................................... 11
Section 4.4 Dental Services.......................................... 11
Section 4.5 Peer Review/Quality Assurance............................ 11
Section 4.6 PC's Insurance........................................... 12
Section 4.7 Name, Trademark.......................................... 12
Section 4.8 Peer Review.............................................. 12
Section 4.9 Records.................................................. 12
Section 4.10 Indemnification.......................................... 12
ARTICLE V. FINANCIAL ARRANGEMENT........................................ 13
Section 5.1 Definitions.............................................. 13
Section 5.2 Management Fee........................................... 13
Section 5.3 Adjustments.............................................. 13
Section 5.4 Reasonable Value......................................... 13
Section 5.5 Payment of Management Fee................................ 13
Section 5.6 Accounts Receivable...................................... 13
Section 5.7 Disputes Regarding Fees.................................. 14
ARTICLE VI. TERM AND TERMINATION........................................ 14
Section 6.1 Initial and Renewal Term................................. 14
Section 6.2 Termination.............................................. 14
Section 6.3 Effects of Termination................................... 15
ARTICLE VII. MISCELLANEOUS.............................................. 15
Section 7.1 Administrative Services Only............................. 15
Section 7.2 Status of Contractor; Agency............................. 15
Section 7.3 Notices.................................................. 16
Section 7.4 Governing Law............................................ 16
Section 7.5 Assignment............................................... 16
Section 7.6 Arbitration.............................................. 17
Section 7.7 Waiver of Breach......................................... 18
Section 7.8 Enforcement.............................................. 18
Section 7.9 Gender and Number........................................ 18
Section 7.10 Additional Assurances.................................... 18
Section 7.11 Consents, Approvals, and Exercise of Discretion.......... 18
Section 7.12 Force Majeure............................................ 18
Section 7.13 Severability............................................. 18
Section 7.14 Divisions and Headings................................... 19
Section 7.15 Amendments and Management Services Agreement Execution... 19
Section 7.16 Entire Management Services Agreement..................... 19
Section 7.17 Waiver of Trial by Jury.................................. 19
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MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT is made and entered into effective as of
February 27, 2001, by and between CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C., a
Delaware limited liability company ("Business Manager"), and XXXXXXX DENTAL
CORPORATION, a California professional corporation ("PC").
RECITALS
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This Management Services Agreement is made with reference to the following
facts:
A. PC is a validly existing California professional corporation, formed
for and engaged in the practice of dentistry and the provision of dental
services to the general public in and around the Los Angeles, California
metropolitan area through individual dentists who are licensed to practice
dentistry in the State of California and who are employed or otherwise retained
by PC.
B. Business Manager is a validly existing Delaware limited liability
company, which has been duly formed to manage the business aspects of the dental
practice of PC.
C. PC desires to focus its energies, expertise and time on the practice
of dentistry and on the delivery of dental services to patients, and to
accomplish this goal it desires to delegate the increasingly more complex
business functions of its dental practice to persons with business expertise.
D. PC wishes to engage Business Manager to provide such management,
administrative and business services as are necessary and appropriate for the
day-to-day administration of the nondental aspects of PC's dental practice in
the Practice Territory (as defined below), and Business Manager desires to
provide such services all upon the terms and conditions hereinafter set forth.
E. PC and Business Manager have determined a fair market value for the
services to be rendered by Business Manager, and based on this fair market
value, have developed a formula for compensation for Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
ARTICLE I. DEFINITIONS
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For the purposes of this Management Services Agreement, the following terms
shall have the following meanings ascribed thereto, unless otherwise clearly
required by the context in which such term is used.
Section 1.1 Act. The term "Act" shall mean Sections 1600 through 1808 of
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the Business and Professions Code of the State of California, as amended, and
all corresponding regulations.
Section 1.2 Adjusted Gross Revenue. The term "Adjusted Gross Revenue"
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shall mean the sum of Professional Services Revenue and Ancillary Revenue.
Section 1.3 Adjustments. The term "Adjustments" shall mean any
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adjustments on an accrual basis for uncollectible accounts, third party payor
contractual adjustments, discounts, workers' compensation adjustments,
professional courtesies, and other reductions in collectible revenue that result
from activities that do not result in collectible charges.
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Section 1.4 Ancillary Revenue. The term "Ancillary Revenue" shall mean
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all other revenue actually recorded each month (net of Adjustments) that is not
Professional Services Revenues, and shall include the proceeds of key person
life and disability insurance as provided for in Section 3.14 below.
Section 1.5 Base Management Fee. The term "Base Management Fee" shall
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mean the amount set forth in Section 5.1.
Section 1.6 Budget. The term "Budget" shall mean an operating budget and
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capital expenditure budget for each fiscal year as prepared by Business Manager
and adopted by PC.
Section 1.7 Business Manager. The term "Business Manager" shall mean
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Castle Dental Centers of California, L.L.C., a Delaware limited liability
company, or any entity that succeeds to the interests of Castle Dental Centers
of California, L.L.P., a Delaware limited liability company, and to whom the
obligations of Business Manager are assigned and transferred.
Section 1.8 Business Manager Expense. The term "Business Manager Expense"
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shall mean an expense or cost incurred by the Business Manager and for which the
Business Manager, and not PC, is financially liable other than expenses incurred
by Business Manager that directly benefit PC which may be allocated to Office
Expense consistent with the Budget.
Section 1.9 Confidential Information. The term "Confidential Information"
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shall mean any information of Business Manager or PC, as appropriate (whether
written or oral), including all notes, studies, patient lists, information,
forms, business or management methods, marketing data, fee schedules, or trade
secrets of the Business Manager or of PC, as applicable, whether or not such
Confidential Information is disclosed or otherwise made available to one party
by the other party pursuant to this Management Services Agreement. Confidential
Information shall also include the terms and provisions of this Management
Services Agreement and any transaction or document executed by the parties
pursuant to this Management Services Agreement. Confidential Information does
not include any information that (i) is or becomes generally available to and
known by the public (other than as a result of an unpermitted disclosure direct;
or indirectly by the receiving party or its affiliates, advisors, or
Representatives); (ii) is or becomes available to the receiving party on a non-
confidential basis from a source other than the furnishing party or its
affiliates, advisors, or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been or is hereafter independently
acquired or developed by the receiving party without violating any
confidentiality agreement with or other obligation of secrecy to the furnishing
party.
Section 1.10 Center. The term "Center" (collectively referred to as
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"Centers") shall mean any office space, clinic, facility, including satellite
facilities, that Business Manager shall own or lease or otherwise procure for
the use of PC, as allowed by law, in the provision of Dental Services pursuant
to this Management Services Agreement.
Section 1.11 Dental Services. The term "Dental Services" shall mean
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dental care and services, including but not limited to the practice of general
dentistry, orthodontics and all related dental care services provided by PC
through PC's Practice Providers that are retained by or professionally
affiliated with PC.
Section 1.12 Dentist. The term "Dentist" shall mean each individually
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licensed professional who is employed or otherwise retained by or associated
with PC, each of whom shall meet at all times the qualifications described in
Section 4.2 and Section 4.3.
Section 1.13 GAAP. The term "GAAP" shall mean generally accepted
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accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the
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circumstances as of the date of the determination. For purposes of this
Management Services Agreement, GAAP shall be applied on an accrual basis in a
manner consistent with the historic practices of the person to which the term
applies.
Section 1.14 Management Fee. The term "Management Fee" shall mean
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Business Manager's compensation established as described in Article V hereof.
Section 1.15 Management Services. The term "Management Services" shall
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mean the business, administrative, and management services to be provided for
PC, including without limitation the provision of equipment, supplies, support
services, non-Practice Provider personnel, office space, management,
administration, financial record keeping and reporting, and other business
office services.
Section 1.16 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Management Services Agreement by and between PC and
Business Manager and any amendments hereto as may be adopted as provided in this
Management Services Agreement.
Section 1.17 Office Expense. The term "Office Expense" shall mean all
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operating and non-operating expenses incurred by the Business Manager or PC in
the provision of services to or by PC. Office Expense shall not include any
expense that is a PC Expense or a Business Manager Expense. Without limitation,
Office Expense shall include:
(a) the salaries and benefits of all employees of Business
Manager at the Centers and the salaries and benefits of the non-Practice
Provider employees of PC, but not the salaries, benefits, or other direct
costs of the Practice Providers;
(b) the direct cost of any employee or consultant that provides
services at or in connection with the Centers for improved clinic
performance, such as management, billing and collections, business office
consultation, accounting and legal services;
(c) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or PC directly related to the recruitment of additional
Practice Providers of PC;
(d) professional liability insurance expenses for Practice
Providers and comprehensive, general liability and workers' compensation
insurance covering the Centers and employees of PC and Business Manager at
each Center;
(e) the expense of using, leasing, purchasing or otherwise
procuring each Center and related equipment, including depreciation;
(f) the cost of capital (whether as actual interest on
indebtedness incurred on behalf of PC or as reasonable imputed interest on
capital advanced by Business Manager, which shall be equal to the average
cost of borrowing by Business Manager from its primary commercial lender as
reflected on its most recent published financial statements) to finance or
refinance obligations of PC, purchase dental or non-dental equipment, or
finance new ventures of PC; the Base Management Fee;
(h) the reasonable out-of-pocket travel expenses associated with
attending meetings, conferences, or seminars to benefit PC;
(i) the reasonable costs and expenses associated with marketing,
advertising and promotional activities to benefit PC; and
(j) the cost of dental supplies (including but not limited to
drugs, pharmaceuticals, products, substances, items, or dental devices),
office supplies, inventory, and utilities other than
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those dental supplies or dental inventory owned by PC on the date of this
Management Services Agreement.
Section 1.18 PC. The term "PC" shall mean Xxxxxxx Dental Corporation, a
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California professional corporation.
Section 1.19 PC Account. The term "PC Account" shall mean the bank
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account of PC established as described in Sections 3.8 and 3.9.
Section 1.20 PC Expense. The term "PC Expense" shall mean an expense
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incurred by the Business Manager or PC that is consistent with the Budget and
for which PC, and not the Business Manager, is financially liable. PC Expense
shall include such items as Practice Provider salaries, benefits, and other
direct costs (including professional dues, subscriptions, continuing dental
education expenses, and travel costs for continuing dental education or other
business travel but excluding business travel requested by Business Manager,
which shall be an Office Expense).
Section 1.21 Performance Fee. The term "Performance Fee" shall mean the
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amount payable to the Business Manager, if any, determined under Section 5.2, as
a Management Fee based upon the Business Manager achieving certain pre-
determined performance criteria.
Section 1.22 Practice Providers. The term "Practice Providers" shall mean
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the Dentists and other individuals who are employees of PC or otherwise under
contract with PC to provide dental or dental, hygienic or other assistance or
services to patients of PC or otherwise required by the Act to be employees of
PC to provide services to patients of the practice.
Section 1.23 Practice Territory. The term "Practice Territory" shall mean
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the geographic area within a radius of ten (10) miles of any current or future
facility from which PC provides Dental Services in California, representing the
specific geographic boundaries of the dental practice conducted by PC within its
particular urban, metropolitan area.
Section 1.24 Professional Services Revenues. The term "Professional
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Services Revenues" shall mean the sum of all professional fees actually recorded
each month on an accrual basis under GAAP (net of Adjustments) as a result of
Dental Services and related services rendered by the shareholders and Practice
Providers of PC.
Section 1.25 Representatives. The term "Representatives" shall mean a
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party's officers, directors, employees, or other agents or representatives.
Section 1.26 Shareholder. The term "Shareholder" shall mean Xxxxxx X.
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Xxxxxxx, D.D.S., an individual licensed to practice dentistry in the State and
the owner of all of the capital stock of PC.
Section 1.27 State. The term "State" shall mean the State of California.
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Section 1.28 Term. The term "Term" shall mean the initial and any renewal
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periods of duration of this Management Services Agreement as described in
Section 6.1.
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
---------------------------------------------
Section 2.1 Appointment. PC hereby appoints Business Manager as its sole
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and exclusive agent for the management, and administration of the business
functions and business affairs of PC, and Business Manager hereby accepts such
appointment, subject at all times to the provisions of this Management Services
Agreement.
Section 2.2 Authority. Consistent with the provisions of this Management
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Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services for PC. Subject to the
terms and conditions of this Management Services
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Agreement, Business Manager is hereby expressly authorized to provide the
Management Services in any reasonable manner Business Manager deems appropriate
to meet the day-to-day requirements of the business functions of PC. Business
Manager is also expressly authorized to negotiate and execute on behalf of PC
contracts that do not relate to the provision of Dental Services. PC shall give
Business Manager thirty (30) days prior notice of PC's intent to execute any
agreement obligating PC to perform Dental Services or otherwise creating a
binding legal obligation on PC. The parties acknowledge and agree that PC,
through its Dentists, shall be responsible for and shall have complete
authority, responsibility, supervision, and control over the provision of all
Dental Services and other professional health care services performed for
patients, and that all diagnoses, treatments, procedures, and other professional
health care services shall be provided and performed exclusively by or under the
supervision of Dentists as such Dentists, in their sole discretion, deem
appropriate. Business Manager shall have and exercise absolutely no control or
supervision over the provision of Dental Services.
Section 2.3 Patient Referrals and Payments. Business Manager and PC agree
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that the benefits to PC hereunder do not require, are not payment for, and are
not in any way contingent upon the refer al, admission, or any other arrangement
for the provision of any item or service offered by Business Manager to patients
of PC or its shareholders, officers, directors, employees, contractors or agents
in any facility, laboratory or health care operation controlled, managed, or
operated by Business Manager nor are such benefits in any way contingent upon
the recommendation, referral or any other arrangement for the provision of any
item or service offered by PC or any of its Practice Providers, employees,
contractors or agents. Further, Business Manager and PC agree that the payment
of monies hereunder in no way represents the division, sharing, splitting or
other allocation of fees for Dental Services between PC and Business Manager.
Section 2.4 Internal Management of PC. Matters involving the internal
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management, control, or finances of PC, including specifically the allocation of
professional income among the shareholders and Practice Providers of PC, tax
planning, and investment planning, shall remain the exclusive responsibility of
PC and the shareholders of PC.
Section 2.5 Practice of Dentistry. The parties acknowledge that Business
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Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of dentistry nor shall Business
Manager now or in the future be regarded as practicing dentistry within the
meaning of Section 1625 of the Act. To the extent any act or service herein
required by Business Manager should be construed by a court of competent
jurisdiction or by the State Board of Dental Examiners to constitute the
practice of dentistry, the requirement to perform that act or service by
Business Manager shall be deemed waived and unenforceable and shall not
constitute a breach or default by Business Manager under this Agreement, and the
parties shall take the actions contemplated by Section 6.2(d) hereof.
ARTICLE III. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
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During the Term, Business Manager shall provide all Management Services as
are necessary and appropriate for the day-to-day administration of the business
aspects of PC's operations, including without limitation those set forth in this
Article III in accordance with all law, rules, regulations and guidelines
applicable to the provision of Management Services.
Section 3.1 Centers and Equipment.
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(a) Subject to Section 3.1(b), as necessary and appropriate,
taking into consideration the professional concerns of PC, Business Manager
shall in its reasonable discretion lease, acquire or otherwise procure
Centers in a location or locations reasonably acceptable to PC and shall
permit PC to use each such Center pursuant to this Management Services
Agreement, by sublease or otherwise as required by law.
(b) PC shall not enter into any lease or sublease with respect to
a Center without Business Manager's prior consent. In the event PC is the
lessee of any Center under a lease with
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an unrelated and non-affiliated lessor, Business Manager may require PC to
assign such lease to Business Manager upon receipt of consent from the
lessor and Business Manager shall permit PC to use such Center pursuant to
this Management Services Agreement, by sublease or otherwise as required by
law. PC shall use its best efforts to assist in obtaining the lessor's
consent to the assignment. Upon request, PC shall execute any instruments
and shall take any acts that Business Manager may deem necessary to
accomplish the assignment of the lease. Any expenses incurred in the
assignment shall be Office Expenses.
(c) Business Manager shall provide all non-dental equipment,
fixtures, office supplies, furniture and furnishings deemed reasonably
necessary by Business Manager for the operation of each Center and
reasonably necessary for the provision of Dental Services pursuant to this
Management Services Agreement, by lease, sublease or otherwise as required
by law.
(d) Business Manager shall provide, finance, or cause to be
provided or financed dental related equipment as required by PC. PC shall
have final authority in all dental equipment selections, and Business
Manager shall have no authority in regard to dental equipment selection
issues. Business Manager may, however, advise PC on the relationship
between its dental equipment decisions and the overall administrative and
financial operations of the practice. All dental and non-dental equipment
acquired for the use of PC shall be owned by Business Manager.
(e) Business Manager shall be responsible for the repair and
maintenance of each Center, consistent with Business Manager's
responsibilities under the terms of any lease or other use arrangement, and
for the repair, maintenance, and replacement of all equipment other than
such repairs, maintenance and replacement necessitated by the negligence or
willful misconduct of PC, its Dentists or other personnel employed by PC,
the repair or replacement of which shall be a PC Expense and not an Office
Expense.
Section 3.2 Dental Supplies. Business Manager shall order, procure,
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purchase and provide on behalf of and as agent for PC all dental supplies
necessary and appropriate for the practice of PC in the reasonable discretion of
PC unless otherwise prohibited by federal and/or State law. Furthermore,
Business Manager shall ensure that each Center is at all times adequately
stocked with the dental supplies that are necessary and appropriate for the
operation of PC and required for the provision of Dental Services. The ultimate
oversight, supervision and ownership for all dental supplies is and shall remain
the sole responsibility of PC. As used in this provision the term "dental
supplies" shall mean all drugs, pharmaceuticals, products, substances, items or
devices whose purchase, possession, maintenance, administration, prescription or
security requires the authorization or order of a licensed health care provider
or requires a permit, registration, certification or other governmental
authorization held by a licensed health care provider as specified under any
federal and/or State law.
Section 3.3 Support Services. Business Manager shall provide or arrange
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for all printing, stationery, forms, postage, duplication or photocopying
services, and other support services as are reasonably necessary and appropriate
for the operation of each Center and the provision of Dental Services therein.
Section 3.4 Quality Assurance, Risk Management, and Utilization Review
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Business Manager shall, upon the request of PC, assist PC in PC's establishment
of procedures to ensure the consistency, quality, appropriateness and necessity
of Dental Services provided by PC, and shall provide administrative support for
PC's overall quality assurance, risk management, and utilization review
programs. Business Manager shall perform these tasks in a manner to ensure the
confidentiality and non-discoverability of these program actions to the fullest
extent allowable under State and federal law.
Section 3.5 Licenses and Permits. Business Manager shall, on behalf of
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and in the name of PC, coordinate all development and planning processes, and
apply for and use reasonable efforts to obtain and maintain all federal, State,
and local licenses and regulatory permits required for or in connection with the
operation of PC and equipment (existing and future) located at each Center,
other
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than those relating to the practice of dentistry or the administration of drugs
by Dentists retained by or associated with PC.
Section 3.6 Personnel. Business Manager shall, consistent with the
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Budget, employ or otherwise retain and shall be responsible for selecting,
hiring, training, supervising, and terminating, all management, administrative,
clerical, secretarial, bookkeeping, accounting, payroll, billing and collection
and other non-Practice Provider personnel as Business Manager deems reasonably
necessary and appropriate to enable Business Manager to perform its duties and
obligations under this Management Services Agreement. All such personnel
employed by Business Manager at each Center shall be reasonably acceptable to PC
and the Business Manager shall consult with PC on the individual who is hired as
PC's office manager. Business Manager shall, consistent with the Budget, have
sole responsibility for determining the salaries and providing such fringe
benefits, and for withholding, as required by law, any sums for income tax,
unemployment insurance, social security, or any other withholding required by
applicable law or governmental requirement.
Section 3.7 Contract Negotiations. Business Manager shall advise PC with
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respect to and negotiate, either directly or on PC's behalf, as appropriate and
allowed by law, all contractual arrangements between PC and third parties as are
reasonably necessary and appropriate for PC's provision of Dental Services,
including, without limitation, negotiated price agreements with third party
payors, alternative delivery systems, or other purchasers of group health care
services, provided that the payor with whom each contractual arrangement is
entered into agrees to pay an amount for PC's professional services thereunder
equal to or greater than the minimum rate that PC shall specify to Business
Manager.
Section 3.8 Billing and Collection. On behalf of and for the account of
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PC, Business Manager shall establish and maintain credit and billing and
collection policies and procedures, and shall timely xxxx and collect all
professional and other fees for all Dental Services provided by PC, or Practice
Providers employed or otherwise retained by PC. Business Manager shall advise
and consult with PC regarding the fees for Dental Services provided by PC; it
being understood, however, that PC shall establish the fees to be charged for
Dental Services and that Business Manager shall have no authority whatsoever
with respect to the establishment of such fees. In connection with the billing
and collection services to be provided hereunder, and throughout the Term (and
thereafter as provided in Section 6.3), PC hereby grants to Business Manager a
special power of attorney and appoints Business Manager as PC's exclusive true
and lawful agent and attorney-in-fact, and Business Manager hereby accepts such
special power of attorney and appointment, for the following purposes:
(a) To xxxx PC's patients, in PC's name and on PC's behalf, for
all Dental Services provided by PC to patients.
(b) To xxxx, in PC's name and on PC's behalf, all claims for
reimbursement or indemnification from Blue Shield/Blue Cross, insurance
companies and all other third party payors or fiscal intermediaries for all
covered billable Dental Services provided by PC to patients.
(c) To collect and receive in Business Manager's name and for
Business Manager's account all accounts receivable of PC purchased by
Business Manager, and to deposit such collections in an account selected by
Business Manager and maintained in Business Manager's name.
(d) To collect and receive, in PC's name and on PC's behalf, all
accounts receivable generated by such xxxxxxxx and claims for reimbursement
that have not been purchased by Business Manager, to administer such
accounts including, but not limited to, (i) extending the time of payment
of any such accounts for cash, credit or otherwise; (ii) discharging or
releasing the obligors of any such accounts; (iii) suing, assigning or
selling at a discount such accounts to collection agencies; or (iv) taking
other measures to require the payment of any such accounts.
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(e) To deposit all amounts collected under clause (d) above into
PC Account which shall be and at all times remain in PC's name. PC
covenants to transfer and deliver to Business Manager for deposit into PC
Account (or, with respect to a- counts receivable purchased by Business
Manager, Business Manager's account) all funds received by PC from patients
or third party payors for Dental Services. Upon receipt by Business Manager
of any funds from patients or third party payors or from PC pursuant hereto
for Dental Services, Business Manager shall immediately deposit those that
relate to accounts receivable covered by clause (d) above into PC Account.
Business Manager shall disburse such deposited funds to creditors and other
persons on behalf of PC, maintaining records of such receipt and
disbursement of funds in accordance with Section 3.9(b).
(f) To take possession of, endorse in the name of PC, and deposit
into the PC Account any notes, checks, money orders, insurance payments,
and any other instruments received in payment for Dental Services that
relate to accounts receivable covered by clause (d) above.
(g) To sign checks, drafts, bank notes or other instruments on
behalf of PC, and to make withdrawals from the PC Account for payments
specified in this Management Services Agreement.
Upon request of Business Manager, PC shall execute and deliver to the financial
institution wherein the PC Account is maintained, such additional documents or
instruments as may be necessary to evidence or effect the special and limited
power of attorney granted to Business Manager by PC pursuant to this Section 3.8
or pursuant to Section 3.9 of this Management Services Agreement. The special
and limited power of attorney granted herein shall be coupled with an interest
and shall be irrevocable except with Business Manager's written consent. The
irrevocable power of attorney shall expire on the later of when this Management
Services Agreement has been terminated, when all accounts receivable purchased
by Business Manager have been collected, or when all Management Fees due to
Business Manager have been paid. If Business Manager assigns this Management
Services Agreement in accordance with its terms, then PC shall execute a power
of attorney in favor of the assignee including substantially the same terms set
forth in this Section 3.8.
Section 3.9 PC Account.
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(a) Access. Business Manager shall have access to the PC Account
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solely for the purposes contemplated hereby. PC shall neither draw checks
on the PC Account nor request Business Manager to do so.
(b) Priority of Payments. Business Manager shall apply on a
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monthly basis, except as otherwise stated hereunder, funds that are in the
PC Account in the following order of priority: (i) PC Expenses; (ii) Office
Expenses (other than the Base Management Fee); (iii) Management Fees (both
Base Management Fee and Performance Fee); and (iv) any other expenditures.
Section 3.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(1) Initial Budget. The initial Budget shall be agreed upon
--------------
and approved in writing by the parties before the execution of this
Management Services Agreement. The 10 initial Budget shall include an
exhibit setting forth the criteria under which Business Manager shall
be entitled to receive the Performance Fee.
(2) Process for Succeeding Budgets. Annually and at least
------------------------------
thirty (30) days prior to the commencement of each fiscal year of PC,
Business Manager shall prepare and deliver to PC for PC's approval a
proposed Budget, setting forth an estimate of PC's revenues and
expenses for the upcoming fiscal year (including, without limitation,
the
8
Management Fee and Performance Fee associated with the services
provided by Business Manager hereunder). PC shall review the proposed
Budget and either approve the proposed Budget or request any changes
within fifteen (15) days after receiving the proposed Budget. The
Budget shall be adopted by PC after its approval thereof and may be
revised or modified only in consultation with the Business Manager.
(3) Succeeding Budgets; Special Rates. In each succeeding
---------------------------------
Budget, unless the parties otherwise mutually agree or are otherwise
precluded by law or regulation, the criteria for the Performance Fee
and Business Manager's right to receive the Performance Fee shall be
continued on the same basis.
(4) Deadlock. In the event the parties are unable to agree on a
--------
Budget by the beginning of the fiscal year, until an agreement is
reached, the Budget for the prior year shall be deemed to be adopted
as the Budget for the current year, with each line item in the Budget
(with the exception of the Base Management Fee and any one-time or
non-recurring expenses included in such prior Budget) increased or
decreased by (i) the percentage by which the Adjusted Gross Revenue in
the current year has increased or decreased compared to the
corresponding period of the prior year; (ii) the increase or decrease
from the prior year in the Consumer Price Index - Health/Medical
Services, Los Angeles, California area; and (iii) the proportionate
increase or decrease in mutually agreed upon personnel costs as
measured by the increase or decrease in full-time equivalent
personnel.
(5) Obligation of Business Manager. Business Manager shall use
------------------------------
commercially reasonable efforts to manage and administer the
operations of PC as herein provided so that the actual revenues, costs
and expenses of the operation and maintenance of PC during any
applicable period of PC's fiscal year shall be consistent with the
Budget.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer accounting procedures, controls, and systems for
the development, preparation, and safekeeping of administrative or
financial records and books of account relating to the business and
financial affairs of PC and the provision of Dental Services all of which
shall be prepared and maintained in accordance with GAAP and applicable
laws and regulations. Business Manager shall prepare and deliver to PC,
within one hundred twenty (120) days of the end of each calendar year, a
balance sheet and a profit and loss statement reflecting the financial
status of PC in regard to the provision of Dental Services as of the end of
such calendar year, all of which shall be prepared in accordance with GAAP
consistently applied. In addition, Business Manager shall prepare or assist
in the preparation of any other financial statements or records as PC may
reasonably request.
(c) Review of Expenditures. PC shall review all expenditures related
----------------------
to the operation of PC, but PC shall not have the power to prohibit or
invalidate any expenditure that is consistent with the Budget. Business
Manager shall not have any authority to make any expenditures not
consistent with the Budget without PC Consent.
(d) Tax Matters.
-----------
(1) In General. Business Manager shall prepare or arrange for
----------
the preparation by an accountant approved in advance by PC (which
approval shall not be unreasonably withheld) of all appropriate tax
returns and reports required of PC.
(2) Sales and Use Taxes. Business Manager and PC acknowledge and
-------------------
agree that to the extent that any of the services to be provided by
Business Manager hereunder may be subject to any State sales and use
taxes, Business Manager may have a legal obligation to collect such
taxes from PC and to remit same to the appropriate
9
tax collection authorities. PC agrees to pay in addition to the
payment of the Management Fee, the applicable State sales and use
taxes in respect of the portion of the Management Fees attributable to
such services.
Section 3.11 Reports and Records. Business Manager shall establish,
-------------------
monitor, and maintain procedures and policies for the timely creation,
preparation, filing and retrieval of all dental records generated by PC in
connection with PC's provision of Dental Services; and, subject to applicable
law, shall use its best efforts to ensure that dental records are promptly
available to Dentists and any other appropriate persons. All such dental records
shall be retained and maintained in accordance with all applicable State and
federal laws relating to the confidentiality and retention thereof. All dental
records shall be and remain the property and under the control of PC and shall
be located at the applicable Center so that they are readily available for
patient care, and PC shall remain the custodian thereof and responsible for
their maintenance. Business Manager shall use its reasonable efforts to preserve
the confidentiality of dental records and use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided, however, in no event shall a breach of said confidentiality be
deemed a default under this Agreement.
Section 3.12 Recruitment of Practice Providers. Upon PC's request,
---------------------------------
Business Manager shall perform all administrative services reasonably necessary
and appropriate to recruit potential Practice Providers to become employees of
PC. Business Manager shall provide PC with model agreements to document PC's
employment, retention or other service arrangements with such individuals. It
will be and remain the sole and complete responsibility of PC to interview,
select, contract with, supervise, control and terminate all Practice Providers
performing Dental Services or other professional services, and Business Manager
shall have no authority whatsoever with respect to such activities.
Section 3.13 Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
worker's compensation coverage for Business Manager's employed personnel
provided pursuant to this Management Services Agreement, and professional,
casualty and comprehensive general liability insurance covering Shareholder,
Business Manager, Business Manager's personnel, and all of Business Manager's
equipment in such amounts, on such basis and upon such terms and conditions as
Business Manager deems appropriate. Upon the request of PC or Shareholder,
Business Manager shall provide PC with a certificate evidencing such insurance
coverage. Business Manager may also carry, as an Office Expense, key person life
and disability insurance on any shareholder or Dentist employee of PC in amounts
determined reasonable and sufficient by Business Manager. Business Manager shall
be the owner and beneficiary of any such insurance. PC and Business Manager
agree to use their best efforts to have each other named as additional insureds
on the other's respective liability insurance policies at Business Manager's
expense.
Section 3.14 No Warranty. PC acknowledges that Business Manager has not
-----------
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of dental practice or income to PC.
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF PC
------------------------------------
Section 4.1 Organization and Operation. PC, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Dental Services in a manner consistent with all State and federal laws.
PC shall operate and maintain within the Practice Territory a full time practice
of dentistry specializing in the provision of Dental Services. PC shall be
responsible for the management of its practice and the Center, in accordance
with the requirements of the Act.
Section 4.2 PC Personnel.
------------
(a) Dental Personnel. PC shall retain, as a PC Expense and not as an
----------------
Office Expense, that number of Practice Providers as are reasonably necessary
and appropriate in the sole discretion of PC
10
for the provision of Dental Services. Each Dentist retained by PC shall hold and
maintain a valid and unrestricted license to practice dentistry in the State,
and shall be competent in the practice of dentistry, including any
subspecialties that the retained Dentist will practice on behalf of PC. PC shall
enter into and maintain with each such retained Dentist a written employment
agreement in a form reasonably satisfactory to PC and Business Manager and will
not commit and permit to remain outstanding any breach of such employment
agreement that would allow the Dentist to terminate for cause. PC shall be
responsible for paying the compensation and benefits, as applicable, for all
Practice Providers or other contracted or affiliated dentists, and for
withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable law.
Business Manager may, on behalf of PC, establish and administer the compensation
with respect to such individuals in accordance wit the written agreement between
PC and each Practice Provider. Business Manager shall neither control nor direct
any Practice Provider in the performance of Dental Services for patients.
(b) Employment of Non-Dentist Practice Providers. PC shall employ or
--------------------------------------------
retain, as an Office Expense, all non-dentist Practice Providers, such as dental
assistants, dental hygienists and dental technicians, required under the Act or
otherwise required by law to work under the direct supervision of a Dentist or
who Business Manager and PC determine should work under the direct supervision
of a Dentist. Such non-dentist dental care personnel shall be under PC's
control, supervision and direction in the performance of Dental Services for
patients.
Section 4.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Practice Provider must (i) comply with, be
controlled and governed by and otherwise provide Dental Services in accordance
with the code of professional conduct and applicable federal, State and
municipal laws, rules, regulations, ordinances and orders, and the ethics and
standard of care of the dental community wherein any Center is located and (ii)
obtain and retain appropriate dental staff membership with appropriate clinical
privileges at any hospital or health care facility at which Dental Services are
to be provided. Procurement of temporary staff privileges pending the completion
of the dental staff approval process shall satisfy this provision, provided the
Dentist actively pursues full appointment and actually receives full appointment
within a reasonable time. In the event that any disciplinary, medical
malpractice or other actions are initiated or threatened against any Practice
Provider, PC shall immediately inform the Business Manager of such action and
the underlying facts and circumstances subject to such confidentiality agreement
or arrangements as PC and the Business Manager shall mutually determine at or
prior to the time of such disclosure. Deficiencies discovered in the performance
of any personnel or in the quality of professional services shall be reported
immediately to the Business Manager, and appropriate steps shall be taken by PC
at once to remedy such deficiencies.
Section 4.4 Dental Services. PC shall ensure that Dentists and non-
---------------
dentist Practice Providers are available to provide Dental Services to patients.
In the event that Dentists are not available to provide Dental Services
coverage, PC shall engage and retain locum tenens coverage as it deems
----- ------
reasonable and appropriate based on patient care requirements. Dentists retained
on a locum tenens basis shall meet all of the requirements of Section 4.3, and
----- ------
the cost of providing locum tenens coverage shall be a PC Expense. With the
----- ------
assistance of the Business Manager, PC and the Dentists shall be responsible for
scheduling Dentist and non-dentist Practice Provider coverage of all dental
procedures. PC shall cause all Dentists to develop and promote PC.
Section 4.5 Peer Review/Quality Assurance. PC shall adopt a peer
-----------------------------
review/quality assessment program to monitor and evaluate the quality and cost-
effectiveness of Dental Services provided by dental personnel of PC. Upon
request of PC, Business Manager shall provide administrative assistance to PC in
performing its peer review/quality assurance activities, but only if such
assistance can be provided consistent with maintaining the confidentiality and
non-discoverability of the processes and actions of the Peer Review/Quality
Assurance process of PC and not be regarded as practicing dentistry under the
Act.
11
Section 4.6 PC's Insurance. PC shall, as an Office Expense, obtain and
--------------
maintain with commercial carriers acceptable to Business Manager appropriate
worker's compensation coverage for PC's employed personnel, if any, and
professional and comprehensive general liability insurance covering PC,
Shareholder and each of the Dentists PC retains or employs to provide Dental
Services. As an Office Expense, insurance premium costs shall be paid in the
order of priority set forth in Section 3.9(b), which section provides that funds
in the PC Account shall be allocated to Office Expenses before any Management
Fees are paid. The comprehensive general liability coverage shall be in the
minimum amount of One Million Dollars ($1,000,000) for each occurrence and Three
Million Dollars ($3,000,000) annual aggregate; and professional liability
coverage shall be in the minimum amount of One Million Dollars ($1,000,000) for
each occurrence and Three Million Hundred Thousand Dollars ($3,000,000) annual
aggregate. The insurance policy or policies shall provide for at least thirty
(30) days advance written notice to PC from the insurer as to any alteration of
coverage, cancellation, or proposed cancellation for any cause. PC shall cause
to be issued to Business Manager by such insurer or insurers a certificate
reflecting such coverage and shall provide written notice to Business Manager
promptly upon receipt of notice given to Dentist of the cancellation or proposed
cancellation of such insurance for any cause. Upon the termination of this
Management Services Agreement for any reason, PC shall obtain and maintain as a
PC Expense "tail" professional liability coverage, in the amounts specified in
this section for an extended reporting period of 15 years, and Business Manager
shall be responsible for reimbursing PC for the cost of all premiums for "tail"
insurance coverage. In no event shall the professional liability insurance
xxxxxx be replaced or changed without PC Consent and Business Manager Consent.
PC and Business Manager agree to use their best efforts to have each other named
as additional insurers on the other's respective professional liability
insurance at Business Manager's expense.
Section 4.7 Name, Trademark. PC represents and warrants that, as of the
---------------
date hereof, PC conducts its professional practice under the name of, and only
under the name of "Castle Dental Centers Dental Group of Xxxxxxx Dental
Corporation" and that such name is the name of PC under California law, and that
to its knowledge PC is the sole and absolute owner of such name. PC covenants
and promises that, without the prior written consent of the Business Manager, PC
will not:
(a) take any action or omit to take any action that is reasonably likely to
result in the change or loss of such name;
(b) license, sell, give, or otherwise transfer such name or the right to
use such name to any dental practice, dentist, professional corporation, or
any other entity; or
(c) cease conducting the professional practice of PC under such name.
Section 4.8 Peer Review. PC shall designate a committee of Dentists to
-----------
function as a dental peer review committee to review credentials of potential
recruits, perform quality assurance functions, and otherwise resolve dental
competence issues. The dental peer review committee shall function pursuant to
formal written policies and procedures.
Section 4.9 Records. PC will keep or cause to be kept accurate, complete
-------
and timely dental and other records of all patients. The management of all
dental and patient files and records shall comply with the Act regarding their
confidentiality and retention and all files and records shall be located so that
they are readily accessible for patient care, consistent with ordinary records
management practices. Such records shall be sufficient to enable the Business
Manager, on behalf of PC, to obtain payments for services and related charges
and to facilitate the delivery of quality patient care by PC. Notwithstanding
the foregoing, patient dental records shall be and remain the property of PC and
the contents thereof shall be solely the responsibility of PC.
Section 4.10 Indemnification. PC shall indemnify, hold harmless and defend
---------------
Business Manager, its officers, directors and employees, from and against any
and all liability, loss, damage, claim, causes of action and expenses (including
reasonable attorneys' fees), whether or not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of Dental Services or any other acts or omissions by PC and/or its
shareholders, agents,
12
employees and/or subcontractors (other than Business Manager) during the term
hereof. Business Manager shall indemnify, hold harmless and defend PC, its
officers, directors and employees, from and against any and all liability, loss,
damage, claim, causes of action and expenses (including reasonable attorneys'
fees), caused or asserted to have been caused, directly or indirectly, by or as
a result of the performance of any intentional acts, negligent acts, or
omissions by Business Manager and/or its shareholders, agents, employees and/or
subcontractors (other than PC) during the term of this Agreement.
ARTICLE V. FINANCIAL ARRANGEMENT
---------------------
Section 5.1 Definitions. For purposes of this Article V, capitalized
-----------
terms used herein shall have the meanings ascribed as follows:
(a) Base Management Fee. The Base Management Fee shall be the amount,
-------------------
calculated on a monthly basis, that is equal to thirty percent (30%) of the
Adjusted Gross Revenue attributable to the applicable monthly period.
(b) Performance Fee. The Performance Fee shall be the amount, calculated
---------------
on a monthly basis, that is calculated in accordance with the applicable Exhibit
to the Budget.
Section 5.2 Management Fee. PC and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by Section
3.9 (b), Business Manager shall be paid the following:
(i) the amount of all Office Expenses (other than the Base
Management Fee) paid by the Business Manager on behalf of PC.
(ii) the Base Management Fee.
Section 5.3 Adjustments. If there are not sufficient funds to pay either
-----------
or both of the Base Management Fee or the Performance Fee, all unpaid amounts
shall accumulate and carry over from month to month until paid or until the
termination of this Management Services Agreement, in which case such unpaid
amounts shall be immediately due and payable as of the date of termination.
Amounts carried over shall earn interest at the rate of ten percent (10%)per
annum. Furthermore, the amount of the Performance Fee paid will be monitored and
reconciled on an annual basis and any overpayments of the Performance Fee shall
be promptly refunded by the Business Manager.
Section 5.4 Reasonable Value. Payment of the Base Management Fee or
----------------
Performance Fee is not intended to be and shall not be interpreted or applied as
permitting Business Manager to share in PC's fees for Dental Services or any
other services, but is acknowledged as the parties' negotiated agreement as to
the reasonable fair market value of the equipment, contract analysis and
support, other support services, purchasing, personnel, office space,
management, administration, strategic management and other items and services
furnished by Business Manager pursuant to this Management Services Agreement,
considering the nature and volume of the services required and the risks assumed
by Business Manager. PC acknowledges that the compensation arrangement is
reasonable under the circumstances noted herein and has executed an Affidavit
attesting to this fact which is attached hereto as Exhibit A and incorporated
herein by this reference.
Section 5.5 Payment of Management Fee. To facilitate the payment of the
-------------------------
Management Fee as provided in Section 5.1 hereof, PC hereby expressly authorizes
Business Manager to make withdrawals of the Management Fee from the PC Account
as such fee becomes due and payable during the Term and thereafter as provided
in Section 6.3.
Section 5.6 Accounts Receivable. To assure that PC receives the entire
-------------------
amount of professional fees for its services and to assist PC in maintaining
reasonable cash flow for the payment of
13
Office Expenses, Business Manager may, during the Term, purchase, without
recourse to PC for the amount of the purchase, the accounts receivable of PC
arising during the previous month by transferring the amount set forth below
into the PC Account. The consideration for the purchase shall be an amount equal
to the Adjusted Gross Revenue recorded each month (according to GAAP reflecting
adjustments related to the bad debt reserve). Business Manager shall be entitled
to offset Office Expenses reimbursement due to Business Manager under Section
5.2 above against the amount payable for the accounts receivable. All
collections in respect to such accounts receivable purchased by Business Manager
shall be received by Business Manager as the agent of PC and shall be endorsed
to Business Manager and deposited in a bank account at a bank designated by
Business Manager. To the extent PC comes into possession of any payments in
respect of such accounts receivable, PC shall direct such payments to Business
Manager for deposit in bank accounts designated by Business Manager. Although it
is the intention of the parties that Business Manager purchase and thereby
become the owner of the accounts receivable of PC, in the event such purchase
shall be ineffective for any reason, PC is concurrently herewith granting to
Business Manager a security interest in the accounts so purchased, together with
all proceeds thereof (collectively, the "Collateral"), and further agrees or to
pledge, assign, transfer or convey any of the Collateral or any proceeds
therefrom, without the prior written consent of the Business Manager, except to
affiliates of the Business Manager. Concurrent with the execution of this
Agreement, PC shall execute a Security Agreement, similar in form and content as
that attached hereto as Exhibit B and incorporated herein by this reference in
order that the Business Manager may perfect its interest in the Collateral. PC
expressly agrees to execute and deliver any appropriate UCC-1 Financing
Statement and UCC-1 fixture filings, if so requested in writing by the Business
Manager.
Section 5.7 Disputes Regarding Fees. PC shall not be entitled to a set-
-----------------------
off or reduction in its Management Fees by reason of its belief that Business
Manager has failed to perform its obligations hereunder or otherwise.
ARTICLE VI. TERM AND TERMINATION
--------------------
Section 6.1 Initial and Renewal Term. The Term of this Management
------------------------
Services Agreement will be for an initial period of 25 years after the effective
date, and shall be automatically renewed for successive five-year periods
thereafter, provided that neither Business Manager nor PC shall have given
notice of termination of this Management Services Agreement at least 180 days
before the end of the initial term or any renewal term, or unless otherwise
terminated as provided in Section 6.2 of this Management Services Agreement.
Section 6.2 Termination.
-----------
(a) Termination By Business Manager. Subject to Section 6.2(c), Business
-------------------------------
Manager may only terminate this Management Services Agreement either without
cause upon 90 days' written notice to PC, or upon the occurrence of any one of
the following events which shall be deemed to be "for cause":
(i) The dissolution of PC or the filing of a petition in voluntary
bankruptcy, an assignment for the benefit of creditors, or other action
taken voluntarily or involuntarily under any State or federal statute for
the protection of debtors and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 days;
(ii) PC materially defaults in the performance of any of its material
duties or obligations hereunder, and such default continues for thirty (30)
days after PC receives notice of the default.
(b) Termination By PC. Subject to Section 6.2(c) PC may only terminate
-----------------
this Management Services Agreement upon any of the following occurrences
which shall be deemed to be "for cause":
14
(i) The dissolution of Business Manager or the filing of a petition in
voluntary bankruptcy, an assignment for the benefit of creditors, or other
action taken voluntarily or involuntarily under any State or federal
statute for the protection of debtors and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 days;
(ii) In the event that Business Manager materially defaults in the
performance of any of its material obligations hereunder and such default
continues for 90 days after Business Manager receives notice of the
default.
(c) Termination by Agreement. In the event PC and Business Manager shall
------------------------
mutually agree in writing, this Management Services Agreement may be terminated
on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event there
------------------------------------------------
shall be a change in the Act, any federal or State statutes, case laws,
regulations or general instructions, the interpretation of any of the foregoing,
the adoption of new federal or State legislation, or a change in any third party
reimbursement system, any of which are reasonably likely to adversely affect the
manner in which either party may perform or be compensated for its services
under this Management Services Agreement or which shall make this Management
Services Agreement unlawful, the parties shall immediately enter into good faith
negotiations regarding a new service arrangement or basis for compensation for
the services furnished pursuant to this Management Services Agreement that
complies with the law, regulation, or policy and that approximates as closely as
possible the economic position of the parties prior to the change. If good faith
negotiations cannot resolve the matter, it shall be submitted to arbitration as
referenced in Section 7.6; provided however that in the event that the State
Board of Dental Examiners issues a final and non-appealable order revoking the
license of any Dentist on the grounds that PC's entering into and performing its
obligations under this Management Services Agreement is unlawful, PC may
terminate this Management Services Agreement upon thirty (30) days prior written
notice.
Section 6.3 Effects of Termination. Upon termination of this Management
----------------------
Services Agreement, as hereinabove provided, neither party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fees and PC Expenses relating to services provided prior to the termination of
this Management Services Agreement and (ii) obligations, promises, or covenants
set forth herein that are expressly made to extend beyond the Term, which
provisions shall survive the expiration or termination of this Management
Services Agreement for any reason. In effectuating the provisions of this
Section 6.3, PC specifically acknowledges and agrees that Business Manager shall
continue to collect and receive on behalf of PC all cash collections from
accounts receivable in existence at the time this Management Services Agreement
is terminated, it being understood that such cash collections will represent, in
part, compensation to Business Manager for management services already rendered
and compensation on accounts receivable purchased by Business Manager.
ARTICLE VII. MISCELLANEOUS
-------------
Section 7.1 Administrative Services Only. Nothing in this Management
----------------------------
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which PC and its
Practice Providers perform Dental Services or other professional health care
services. The rendition of all Dental Services, including, but not limited to,
the prescription or administration of drugs shall be the sole responsibility of
PC and its Dentists, and Business Manager shall not interfere in any manner or
to any extent therewith. Nothing contained in this Management Services Agreement
shall be construed to permit Business Manager to engage in the practice of
dentistry, it being the sole intention of the parties hereto that the services
to be rendered to PC by Business Manager are solely for the purpose of providing
non-dental management and administrative services to PC so as to enable PC to
devote its full time and energies to the professional conduct of its dental
practice and provision of Dental Services to its patients and not to
administration, or practice management.
15
Section 7.2 Status of Contractor; Agency. It is expressly acknowledged
----------------------------
that the parties hereto are independent contractors and that this Management
Services Agreement is intended to constitute Business Manager as PC's agent.
Nothing herein shall be construed to create an employer/employee, partnership,
or joint venture relationship, or to allow either to exercise control or
direction over the manner or method by which the other performs the services
that are the subject matter of this Management Services Agreement or to permit
Business Manager to take any action that would constitute the practice of
dentistry; provided always that the services to be provided hereunder shall be
famished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands and
agrees that (i) the other will not be treated as an employee for federal tax
purposes, (ii) neither will withhold on behalf of the other any sums for income
tax, unemployment insurance, social security, or any other withholding pursuant
to any law or requirement of any governmental body or make available any of the
benefits afforded to its employees, (iii) all of such payments, withholdings,
and benefits, if any, are the sole responsibility of the party incurring the
liability, and (iv) each will indemnify and hold the other harmless from any and
all loss or liability arising with respect to such payments, withholdings, and
benefits, if any.
Section 7.3 Notices. Any notice, demand, or communication required,
-------
permitted, or desired to be given hereunder shall be in writing and shall be
served on the parties at the following respective addresses:
PC: Xxxxxxx Dental Corporation
0000 X. Xxxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxx, D.D.S.
Business Manager: CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.
0000 Xxxx Xxx Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xxxx X. Xxxxx
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted, or desired to be given hereunder shall be
sent either (a) by hand delivery, in which case notice shall be deemed received
when actually delivered, (b) by prepaid certified or registered mail, return
receipt requested, in which case notice shall be deemed received five calendar
days after deposit, postage prepaid in the United States Mail, or (c) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after deposit with such courier.
Section 7.4 Governing Law. This Management Services Agreement shall be
-------------
governed by the laws of the State of California applicable to agreements to be
performed wholly within the State. California law was chosen by the parties
after negotiation to govern interpretation of this Management Services Agreement
because Los Angeles County, California is the seat of management for Business
Manager. The federal and State courts of Los Angeles County, California shall be
the exclusive venue for any litigation, special proceeding, or other proceeding
between the parties that may arise out of, or be brought in connection with or
by reason of, this Management Services Agreement.
Section 7.5 Assignment. Except as may be herein specifically provided to
----------
the contrary, this Management Services Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that PC may not
assign this Management Services Agreement without the prior written consent of
Business Manager, which consent may be withheld. The sale, transfer, pledge, or
assignment of any of the common shares held by any shareholder of PC or the
issuance by PC of common or other voting shares to any other person, or any
combination of such transactions within a period of one (1) year, such that the
existing shareholder in PC fails to maintain a majority of the voting interests
in PC shall be deemed an attempted assignment by PC, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
16
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours notice to PC.
Section 7.6 Arbitration.
-----------
(a) General. The parties shall use good faith negotiation to
-------
resolve any controversy, dispute or disagreement arising out of or relating
to this Management Services Agreement or the breach of this Management
Services Agreement. Any matter not resolved by negotiation shall be
submitted to binding arbitration and such arbitration shall be governed by
the terms of this Section 7.6.
(b) Scope. Unless otherwise specifically provided herein, the
-----
parties hereto agree that any claim, controversy, dispute or disagreement
between or among any of the parties hereto arising out of or relating to
this Management Services Agreement (other than claims involving any
noncompetition or confidentiality covenant) shall be governed exclusively
by the terms and provisions of this Section 7.6; provided, however, that
the terms and provisions of this Section 7.6 shall not preclude any party
hereto from seeking, or a court of competent jurisdiction from granting, a
temporary restraining order, temporary injunction or other equitable relief
for any breach of (i) any noncompetition or confidentiality covenant herein
or (ii) any duty, obligation, covenant, representation or warranty, the
breach of which may cause irreparable harm or damage.
(c) Arbitrators. In the event of any claim, controversy, dispute
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or disagreement between the parties hereto arising out of or relating to
this Management Services Agreement, and in the further event the parties
are unable to resolve such claim, controversy, dispute or disagreement
within thirty (30) days after notice is first delivered pursuant to Section
7.3, the parties agree to select arbitrators to hear and decide all such
claims under this Section 7.6. Each party shall select one arbitrator. The
two arbitrators so chosen shall then select a third arbitrator who is
experienced in the matter or action that is subject to such arbitration. If
such matter or action involves health-care issues, then the third
arbitrator shall have such qualifications as would satisfy the requirements
of the American Health Lawyers Association Alternative Dispute Resolution
Service. Each of the arbitrators chosen shall be impartial and independent
of all parties hereto. If either of the parties fails to select an
arbitrator within twenty days after the end of such thirty-day period, or
if the arbitrators chosen fail to select a third arbitrator within twenty
days, then any party may in writing request the judge of the United States
District Court for the Central District of California senior in term of
service to appoint the arbitrator or arbitrators and, subject to this
Section 7.6, such arbitrators shall hear all arbitration matters arising
under this Section 7.6, and, in default of such selection, may ask the
American Arbitration Association.
(d) Applicable Rules.
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(i) Each arbitration hearing shall be held at a place in Los
Angeles, California acceptable to a majority of the arbitrators.
The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association to the extent such rules do not conflict with the terms
hereof. The decision of a majority of the arbitrators shall be
reduced to writing and shall be binding on the parties. Judgment
upon the awards) rendered by a majority of the arbitrators may be
entered and execution had in any court of competent jurisdiction or
application may be made to such court for a judicial acceptance of
the award and an order of enforcement. The charges and expenses of
the arbitrators shall be shared equally by the parties to the
hearing.
(ii) The arbitration shall commence within thirty (30) days
after the arbitrators are selected in accordance with the
provisions of this Section 7.6. In fulfilling their duties with
respect to the matter in arbitration, the arbitrators may consider
such matters as, in the opinion of the arbitrators, are necessary
or helpful to make a proper
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valuation. The arbitrators may consult with and engage disinterested
third parties to advise the arbitrators. The arbitrators shall not add
any interest factor reflecting the time value of money to the amount
of any award granted under any arbitration hereunder and shall not
award any punitive damages.
(iii) If any of the arbitrators selected hereunder should
die, resign or be unable to perform his or her duties hereunder, the
remaining arbitrators or such senior judge (or such judge's successor)
shall select a replacement arbitrator. The procedure set forth in this
Section 7.6 for selecting the arbitrators shall be followed from time
to time as necessary.
(iv) As to the resolution of any claim, controversy, dispute
or disagreement that under the terms hereof is made subject to
arbitration, no lawsuit based on such resolution shall be instituted
by either of the parties hereto, other than to compel arbitration
proceedings or enforce the award of a majority of the arbitrators.
(v) All privileges under California and federal law,
including attorney-client and work- product privileges, shall be
preserved and protected to the same extent that such privileges would
be protected in a federal court proceeding applying California law.
Section 7.7 Waiver of Breach. The waiver by either party of a breach or
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violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
Section 7.8 Enforcement. In the event either party resorts to legal
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action to enforce or interpret any provision of this Management Services
Agreement, the prevailing party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
Section 7.9 Gender and Number. Whenever the context of this Management
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Services Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
Section 7.10 Additional Assurances. Except as may be herein specifically
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provided to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable and
as the requesting party may deem necessary to effectuate this Management
Services Agreement.
Section 7.11 Consents, Approvals, and Exercise of Discretion. Whenever
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this Management Services Agreement requires any consent or approval to be given
by either party, or either party must or may exercise discretion, and except
where specifically set forth to the contrary, the parties agree that such
consent or approval shall not be unreasonably withheld or delayed, and that such
discretion shall be reasonably exercised.
Section 7.12 Force Majeure. Neither party shall be liable or deemed to be
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in default for any delay or failure in performance under this Management
Services Agreement or other interruption of service deemed to result, directly
or indirectly, from acts of God, civil or military authority, acts of public
enemy, war, accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either party's employees,
or any other similar cause beyond the reasonable control of either party unless
such delay or failure in performance is expressly addressed elsewhere in this
Management Services Agreement.
Section 7.13 Severability. The parties hereto have negotiated and
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prepared the terms of this Management Services Agreement in good faith with the
intent that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective parties.
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Accordingly, if any one or more of the terms, provisions, promises, covenants or
conditions of this Management Services Agreement or the application thereof to
any person or circumstance shall be adjudged to any extent invalid,
unenforceable, void or voidable for any reason whatsoever by a court of
competent jurisdiction or an arbitration tribunal, such provision shall be as
narrowly construed as possible, and each and all of the remaining terms,
provisions, promises, covenants and conditions of this Management Services
Agreement or their application to other persons or circumstances shall not be
affected thereby and shall be valid and enforceable to the fullest extent
permitted by law. To the extent this Management Services Agreement is in
violation of applicable law, then the parties agree to negotiate in good faith
to amend the Management Services Agreement, to the extent possible consistent
with its purposes, to conform to law.
Section 7.14 Divisions and Headings. The divisions of this Management
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Services Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
Section 7.15 Amendments and Management Services Agreement Execution. This
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Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of PC by its President, and on behalf of
Business Manager by any duly authorized officer thereof. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument.
Section 7.16 Entire Management Services Agreement. With respect to the
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subject matter of this Management Services Agreement, this Management Services
Agreement and the Option Agreement entered into contemporaneously herewith
supersede all previous contracts and constitutes the entire agreement between
the parties. Neither party shall be entitled to benefits other than those
specified herein. No prior oral statements or contemporaneous negotiations or
understandings, except for the Budget, or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Management Services Agreement shall be
recognized unless incorporates' herein by amendment as provided herein, such
amendments) to become effective on the date stipulated in such amendment(s).
The parties specifically acknowledge that, in .entering into and executing this
Management Services Agreement, except for the Budget, the; parties rely solely
upon the representations and agreements contained in this Management Services
Agreement and no others.
Section 7.17 Waiver of Trial by Jury. With respect to any dispute arising
-----------------------
under or in connection with this Agreement or any related agreement, as to which
legal action nevertheless occurs, each party hereby irrevocably waives all
rights it may have to demand a jury trial. This waiver is knowingly,
intentionally and voluntarily made by the parties and each party acknowledges
that no person acting on behalf of the other party has made arty representation
of fact to induct this waiver of trial by jury or in any way modified or
nullified its effect. The parties each further acknowledge that it has been
represented (or has had the opportunity to be represented} in the signing of
this Agreement and in the making of this waiver by independent legal counsel,
selected of its own free will, will that it has had the opportunity to discuss
this waiver with counsel. Each party further acknowledges that it has read and
understands the meaning and ramifications of this waiver provision.
IN WITNESS WHEREOF, PC and Business Manager have caused this Management
Services Agreement to be executed by their duly authorized representatives, all
as of the day and year first above written.
PC: XXXXXXX DENTAL CORPORATION
By:
Xxxxxx X., Xxxxxxx, President
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BUSINESS MANAGER: CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.
By:
Xxxx X. Xxxxx, Chief Financial Officer
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