Exhibit 10.26
FIFTH AMENDMENT TO
SERVICES AND SUPPORT AGREEMENT
This Fifth Amendment to Service and Support Agreement (the "FIFTH
AMENDMENT") effective as of June 1, 2002 (the "EFFECTIVE DATE") is by and
between Coast Dental Services, Inc., a Delaware corporation ("CDS") and Coast
Florida, P.A., a Florida professional corporation (the "DENTAL PRACTICE ENTITY"
or the "P.A.").
R E C I T A L S
WHEREAS, CDS and Dental Practice Entity are parties to that certain
Services and Support Agreement dated as of October 1, 1996, amended on June 1,
1997, further amended on October 1, 1998, further amended on February 1, 1999,
and further amended on January 1, 2000 (the "SERVICES AND SUPPORT AGREEMENT");
WHEREAS, CDS and Dental Practice Entity desire to amend the Services
and Support Agreement to change the methodology for determining the monthly
services and support fee (the "S&S FEE") earned by CDS for its services and
support to Dental Practice Entity;
WHEREAS, CDS and Dental Practice Entity further desire to amend the
Services and Support Agreement to provide for the transfer of Dental Practice
Entity's accounts receivable arising from the provision of dental services
during each month to CDS for payment of the S&S Fee;
WHEREAS, these changes were precipitated by the favorable impact on the
financial performance of Dental Centers converted to the recently implemented
Dental Equity Model, which model provides the equity dentist and the Dental
Practice Entity an incentive for improving financial performance. This amendment
will incorporate the financial performance of each Dental Center in the
determination of the S&S Fee earned by CDS.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
to modify, supplement and amend the Services and Support Agreement as follows:
1. Recitals. The statements contained in the Recitals of facts
set forth above are true and correct and are by this reference made a part of
this Fifth Amendment.
2. Article III entitled "Financial Arrangements" is hereby
deleted in its entirety and the following is substituted therefor:
III. FINANCIAL ARRANGEMENTS
3.1 Service and Support Fee: CDS shall receive a service
and support fee (the "S&S FEE") calculated in accordance with Exhibit
"A" attached hereto. Except as otherwise provided, the amounts to be
paid to CDS under this Section 3.1 shall be payable monthly. The
amounts shall be estimated based upon the previous month's operating
results of the Dental Center. Adjustments to the estimated payments
shall be made to reconcile actual amounts due under this Section 3.1,
by the end of the following month. Upon preparation of quarterly
financial statements, final adjustments to the service fee for the
quarter shall be made and any additional payments owing to CDS or the
Dental Practice Entity shall then be made. Any audit adjustments shall
be reflected in the calculations for the fourth quarter.
3.2 Accounts Receivable. To assure that the Dental
Practice Entity receives the entire amount of professional fees for its
dental services and to assist in maintaining reasonable cash flow for
the payment of Dental Center expenses, the Dental Practice Entity will
sell to CDS, during the term of the Agreement, the Dental Practice
Entity's patient and insurance accounts receivable (the "ACCOUNTS
RECEIVABLE") arising before the Effective Date and thereafter during
the previous month. The consideration for the purchase of the Accounts
Receivable shall be a reduction in the S&S Fees payable to CDS in an
amount equal to the accumulated accounts receivable recorded by the
Dental Practice Entity each month (according to GAAP without adjustment
for any bad debt reserve). CDS shall be entitled to offset the S&S Fee
due to CDS in accordance with Exhibit A to this Agreement against the
amount payable for the Accounts Receivable. The sale of the Accounts
Receivable to CDS shall be with full recourse to the Dental Practice
Entity. If any of such Accounts Receivable are not collected within
ninety (90) days after such accounts receivable are purchased by CDS,
the Dental Practice Entity will indemnify CDS for any such
uncollectible Accounts Receivable. Although it is the intention of the
parties that CDS purchase and thereby become the owner of the Accounts
Receivable of the Dental Practice Entity, in the event such purchase
shall be ineffective for any reason, the Dental Practice Entity is
concurrently herewith granting to CDS a security interest in the
Accounts Receivable so purchased, and the Dental Practice Entity shall
cooperate with CDS and execute all documents in connection with the
pledge of such purchased Accounts Receivable to CDS. All collections in
respect to such Accounts Receivable purchased by CDS shall be received
by CDS as the agent of the Dental Practice Entity and shall be endorsed
to CDS and deposited in a bank account at a bank designated by CDS. To
the extent the Dental Practice Entity comes into possession of any
payments in respect of such Accounts Receivable, the Dental Practice
Entity shall direct such payments to CDS for deposit in bank accounts
designated by CDS; provided, however, that nothing contained herein
shall be construed as the Dental Practice Entity relinquishing control
over credit extended by the Dental Practice Entity.
2
3.3 Dental Center Expenses. So long as the Dental
Practice Entity is in full compliance with the terms hereof, CDS shall
be responsible for the payment of all Dental Center Expenses, as
defined in Exhibit "A" attached hereto, during the term of this
Agreement by the Dental Practice Entity, unless otherwise agreed to by
the parties hereto.
3. Exhibit A. Exhibit "A" to the Services and Support Agreement
is hereby deleted in its entirety and the Exhibit "A" attached hereto is
substituted therefor.
4. Other Provisions. All of the term and provisions contained in
the Services and Support Agreement shall remain in full force and effect unless
specifically modified, supplemented or amended by this Fifth Amendment. Defined
terms used but not otherwise defined herein shall have the meanings given to
them in the Services and Support Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the day and year first above written.
"DENTAL PRACTICE ENTITY"
COAST FLORIDA, P.A.
By: /s/ Xxxx Xxxxxx
--------------------------------------------
Xxxx Xxxxxx, D.D.S., President
"CDS"
COAST DENTAL SERVICES, INC.
By: /s/ Xxxxx Xxxxxx
--------------------------------------------
Xxxxx Xxxxxx, Chief Executive Officer
3
FIFTH AMENDMENT TO
SERVICES AND SUPPORT AGREEMENT
EXHIBIT "A"
SERVICES AND SUPPORT FEE
1. CDS will earn an S&S Fee calculated as follows:
a. CDS will receive a fee based on the actual Dental
Center Expenses; and
b. CDS will receive a variable, performance-based, fee
set at 90% of the excess of net dental services
revenue over Dental Center Expenses.
As used herein, "Dental Center Expenses" shall mean all actual
direct and indirect operating and non-operating expenses
incurred by CDS in providing services and support to the
Dental Center, including, without limitation:
(i) Salaries, benefits, and other direct costs
of all employees of CDS at the Dental Center, including dental
assistants (but excluding all Dentists and dental hygienists);
(ii) Direct costs of all employees or consultants
of CDS who provide services at or in connection with the
Dental Center required for improved clinic performance, such
as work management, materials management, purchasing, charge
and coding analysis, and business office consultation;
(iii) Other direct and indirect expenses incurred
by CDS or an affiliate of CDS in providing services and
support to the Dental Centers including dental supplies and
lab fees, advertising and promotional costs, rent and
occupancy costs, depreciation on assets used at the Dental
Center, and Dental Center general and administrative expenses;
other than the kind of expenses listed in items (i) and (ii)
above;
(iv) Personal property and intangible taxes
assessed against CDS's assets used in connection with the
operation of the Dental Center, commencing on the date of this
Agreement;
(v) Interest expense on indebtedness incurred by
CDS to finance any of its obligations hereunder or services
provided hereunder;
(vi) Malpractice insurance expenses and dentist
recruitment expenses; and
(vii) Other expenses incurred by CDS in carrying
out its obligations under this Agreement.
4
"Dental Center Expenses" shall not include:
(i) Any federal or state income taxes;
(ii) Any bad debt and related expense; and
(iii) Any expenses which are expressly designated
herein as expenses or responsibilities of the Dental
Practice Entity.
2. If the Dental Center Expenses are in excess of net dental services
revenues, then the S&S Fee earned by CDS is limited solely to the fee
based on the actual costs of providing services and support and CDS
will not earn a variable, performance-based, fee.
3. The S&S Fee earned by CDS will be calculated on a stand-alone basis for
and using the stand-alone financial performance of each Dental Center.
5
ACCOUNTS RECEIVABLE
PURCHASE AND SALE AGREEMENT
This Accounts Receivable Purchase and Sale Agreement (this "AGREEMENT")
effective as of June 1, 2002 ("EFFECTIVE DATE") is by and between Coast Florida,
P.A., a Florida professional corporation (hereinafter called "SELLER"), and
Coast Dental Services, Inc., a Delaware corporation (hereinafter called
"PURCHASER").
R E C I T A L S
WHEREAS, Seller and Purchaser are parties to that certain Services and
Support Agreement dated October 1, 1996, as amended (the "SERVICES AND SUPPORT
AGREEMENT");
WHEREAS, Purchaser desires to acquire from Seller and Seller desires to
sell to Purchaser the Accounts Receivable (as hereinafter defined) of Seller
upon the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereto
hereby agree as follows:
1. SALE OF ACCOUNTS RECEIVABLE. Subject to the terms of this Agreement,
Seller hereby sells, conveys, assigns and transfers to Purchaser, and Purchaser
hereby purchases, all right, title and interest of Seller in and to all of
Seller's patient and insurance accounts receivable (the "ACCOUNTS RECEIVABLE")
(i) arising before the Effective Date and (ii) arising each month after the
Effective Date during the term of the Services and Support Agreement.
2. CONSIDERATION. The consideration for the purchase of the Accounts
Receivable shall be a reduction in the fees payable by Seller to Purchaser
pursuant to the Services and Support Agreement (the "FEES") in an amount equal
to the accumulated accounts receivable recorded by Seller each month (according
to GAAP without adjustment for any bad debt reserve). Purchaser shall be
entitled to offset the Fees due to Purchaser from Seller against the amount
payable for the Accounts Receivable.
3. SELLER'S WARRANTIES. Seller warrants that it is the lawful owner in
every respect of the Accounts Receivable and that the Accounts Receivable are
free and clear of any and all liens, security interests, mortgages,
encumbrances, pledges, claims, demands and charges of every kind and character
whatsoever.
4. SELLER'S COVENANTS. Seller hereby covenants to Purchaser as
follows:
(A) The sale of the Accounts Receivable to Purchaser shall be with full
recourse to Seller. If any of such Accounts Receivable are not collected within
ninety (90) days after such accounts receivable are purchased by Purchaser,
Seller will indemnify Purchaser for any such uncollectible Accounts Receivable.
(B) Although it is the intention of the parties that Purchaser hereby
purchase and thereby become the owner of the Accounts Receivable of Seller, in
the event such purchase shall be ineffective for any reason, Seller is
concurrently herewith granting to Purchaser a security interest in the Accounts
Receivable so purchased, and Seller shall cooperate with Purchaser and execute
all documents in connection with the pledge of such purchased Accounts
Receivable to Purchaser. All collections in respect to such Accounts Receivable
purchased by Purchaser shall be received by Purchaser as the agent of Seller and
shall be endorsed to Purchaser and deposited in a bank account at a bank
designated by Purchaser. To the extent Seller comes into possession of any
payments in respect of such Accounts Receivable, Seller shall direct such
payments to Purchaser for deposit in bank accounts designated by Purchaser;
provided, however, that nothing contained herein shall be construed as Seller
relinquishing control over credit extended by Seller.
(C) Seller covenants that Seller and its successors and assigns shall
warrant and defend the title to all the herein described Accounts Receivable
unto the Purchaser, its successors and assigns, forever against the claims and
demands of all persons whomsoever.
(D) Seller shall execute and deliver such other documents and do such
other acts as Purchaser shall deem necessary to carry out the intent of this
Agreement, including, but not limited to, any financing statements as is
necessary to give notice of Purchaser's purchase of the Accounts Receivable
under the applicable Uniform Commercial Code then in effect.
5. EFFECTIVE DATE. This Agreement shall be effective as to the transfer
of the Accounts Receivable as of the Effective Date hereinabove set forth.
IN WITNESS WHEREOF, this Agreement is executed on the date set forth
above.
Witnesses as to Seller: COAST FLORIDA, P.A.,
/s/ Xxxxx Xxxxxx a Florida professional corporation
--------------------------
/s/ Xxx Xxxxxxx
-------------------------- By: /s/ Xxxx Xxxxxx
-------------------------------------
Xxxx Xxxxxx, D.D.S., President
Witnesses as to Purchaser: COAST DENTAL SERVICES, INC.,
a Delaware corporation
/s/ Xxxxx Xxxxxx
-------------------------- By: /s/ Xxxxx Xxxxxx
-------------------------------------
/s/ Xxx Xxxxxxx Xxxxx Xxxxxx, Chief Executive Officer
---------------------------
-2-
