Exhibit 10.4
MANAGEMENT SERVICES AGREEMENT
BETWEEN
_____________________________
(the "New PC")
AND
Omega Orthodontics of Austin, Inc.
(the "MSO")
AND
OMEGA Orthodontics, Inc.
("OMEGA")
MANAGEMENT SERVICES AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 TERM................................................................1
ARTICLE 2 DUTIES OF THE MSO...................................................2
2.1 General....................................................................2
2.2 Orthodontic Office Services................................................2
2.3 Administrative Services....................................................2
2.4 Business Systems, Procedures and Forms.....................................3
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control...............3
2.6 Regulatory Compliance Services.............................................3
2.7 Billing, Collection........................................................4
2.8 Disbursement of Funds......................................................4
2.9 MSO Expenses...............................................................5
2.10 Credit Reports............................................................6
2.11 Accounting; Bookkeeping and Reports.......................................7
2.12 Marketing.................................................................7
2.13 Complaints................................................................7
2.14 Practice Laws.............................................................7
2.15 Monthly Meetings..........................................................7
2.16 Maintenance and Cleaning Services.........................................7
2.17 Licenses and Permits......................................................7
2.18 Insurance.................................................................8
2.19 Practice Transition and Associate Selection...............................8
ARTICLE 3 DUTIES OF THE NEW PC................................................9
3.1 General....................................................................9
3.2 Employment of the Orthodontists and Rendering of Patient Care..............9
3.3 Professional Services......................................................9
3.4 Records...................................................................10
3.5 Professional Expenses.....................................................10
3.6 Professional Liability Insurance..........................................10
3.7 Employment Agreement......................................................10
3.8 Confidentiality...........................................................11
ARTICLE 4 PROFESSIONAL SERVICES, CONTROL OF SOLICITATION, APPROVAL OF
ADVERTISING MATERIAL AND NO RECIPROCATION.....................................12
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ARTICLE 5 LEASE OF OFFICE FACILITIES AND EQUIPMENT...........................14
5.3. No Warranty.............................................................15
ARTICLE 6 COMPENSATION.......................................................16
ARTICLE 7 SECURITY INTEREST..................................................16
ARTICLE 8 COVENANTS..........................................................17
8.1 New PC's Covenants........................................................17
8.2 MSO's Covenants...........................................................18
ARTICLE 9 INSURANCE AND INDEMNITY.............................................18
9.1 Insurance to be Maintained by the New PC..................................18
9.2 Insurance to be Maintained by the MSO.....................................18
9.3 Tail Insurance Coverage...................................................18
9.4 Additional Insureds.......................................................19
9.5 Indemnification...........................................................19
ARTICLE 10 TERMINATION.......................................................19
10.1 Termination by the New PC................................................19
10.2 Termination by MSO.......................................................20
ARTICLE 11 AUTHORIZED AGENT AND POWERS OF ATTORNEY...........................21
ARTICLE 12 INDEPENDENT CONTRACTOR RELATIONSHIP...............................21
ARTICLE 13 MISCELLANEOUS.....................................................21
13.1 Access to Records........................................................22
13.2 Patient Records..........................................................22
13.3 The New PC's Control Over the Orthodontic Practice.......................22
ARTICLE 14 ALTERNATIVE DISPUTE RESOLUTION.....................................22
14.1 Alternative Dispute Resolution...........................................22
14.2 Waiver of Jury.................................Error! Bookmark not defined.
ARTICLE 15 GENERAL PROVISIONS................................................23
15.1 Notices..................................................................23
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15.2 Confidentiality..........................................................23
15.3 Contract Modifications for Prospective Legal Events......................24
15.4 Remedies Cumulative......................................................24
15.5 No Obligation to Third Parties...........................................24
15.6 Entire Agreement.........................................................24
15.7 Assignment...............................................................24
15.8 Attorneys' Fees..........................................................24
15.9 Governing Law............................................................25
15.10 Events Excusing Performance.............................................25
15.11 Compliance with Applicable Laws.........................................25
15.12 Language Construction...................................................25
15.13 Amendments..............................................................25
15.14 Severability............................................................25
15.15 No Waiver...............................................................25
15.16 Captions................................................................25
15.17 Counterparts............................................................25
SCHEDULE 1 THE ORTHODONTISTS
SCHEDULE 2 ORTHODONTIC OFFICES AND SERVICES
SCHEDULE 3 COMPENSATION - MANAGEMENT FEES
EXHIBIT A ORTHODONTIC OFFICES - MASTER LEASE
EXHIBIT B PRACTICE PROVIDERS
EXHIBIT C INTENTIONALLY OMITTED
EXHIBIT D SECURITY AGREEMENT
EXHIBIT E ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
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MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT is made effective as of this _____ day of ___________, 1997,
by and between ____________________, Inc., a professional corporation (the "New
PC") incorporated under the laws of the State of Texas (the "State"), and OMEGA
Orthodontics of Austin, Inc., a Delaware corporation (the "MSO"), and OMEGA
ORTHODONTICS, INC., a Delaware corporation ("OMEGA").
WHEREAS, OMEGA provides professional management and marketing services to
orthodontic practices in the United States, which services include providing
practice management systems, office space, equipment, furnishings and active
administrative personnel necessary for the operation of orthodontic practices
and are provided directly or indirectly through management service organizations
such as the MSO;
WHEREAS, OMEGA and Xxxx X. Xxxxxxx, D.D.S. ("Xx. Xxxxxxx") who is duly
licensed to practice orthodontics in the State have entered into that certain
Affiliation Agreement and Agreement and Plan of Merger (the "Affiliation
Agreement") dated as of ________, 1997, pursuant to which Xxxx X. Xxxxxxx,
D.D.S., M.S., Inc., a Texas professional corporation owned by Xx. Xxxxxxx was
merged into and with the MSO, a wholly-owned subsidiary of OMEGA, with the MSO
being the surviving corporation;
WHEREAS, the New PC owns and operates an orthodontic practice with offices
located in the facilities identified in Exhibit A (the "Orthodontic Offices")
and furnishes orthodontic care to the general public through the services of Xx.
Xxxxxxx and any and all other orthodontists who are or become affiliated with
the New PC as of or following the date and who are or become subsequently named
on Schedule 1 hereto (individually, an "Orthodontist" and collectively, the
"Orthodontists");
WHEREAS, the MSO was formed and acquired to provide equipment, facilities
and personnel to, and to manage the non-orthodontic business affairs of, the New
PC;
WHEREAS, the MSO's services are designed to improve the efficiency and
profitability of the New PC while enhancing the ability of Xx. Xxxxxxx and the
Orthodontists (if any) to render quality orthodontic care to the patients of the
New PC;
WHEREAS, the New PC wishes to retain the MSO to perform the functions and
to provide the services described in this Agreement to assist the New PC to
achieve the above goals.
NOW, THEREFORE, IT IS AGREED that the MSO shall perform managerial and
administrative services for the New PC and provide office space and orthodontic
facilities appropriate for rendering general orthodontic treatment at the
Orthodontic Offices upon the following terms and conditions:
ARTICLE 1
TERM
1.1 The initial term of this Agreement shall commence on the date first
above written and continue for a period of twenty (20) years (the "Initial
Term"), subject, however, to earlier termination in accordance with Article 10
hereof. This Agreement shall continue for two separate and successive ten year
periods (each a "Renewal Term" and collectively with the Initial Term, the
"Term") unless the MSO otherwise elects upon six months written notice to the
New PC prior to expiration of the Initial Term or any then effective Renewal
Term.
ARTICLE 2
DUTIES OF THE MSO
2.1 General. The MSO shall provide and the MSO shall provide the New PC
with comprehensive practice management, financial and marketing services, and
such facilities, equipment, and support personnel as are reasonably required by
the New PC to operate its orthodontic practice at the Orthodontic Offices, as
determined by the MSO in consultation with the New PC. The New PC hereby
appoints the MSO as the sole and exclusive business manager of the New PC and
agrees that the MSO shall have all power and authority reasonably necessary to
manage the non-orthodontic business affairs of the New PC and carry out the
MSO's orthodontic duties under this Agreement, subject to the requirements of
the applicable provisions of State law relating to the practice of orthodontics.
The MSO may perform some or all of its services at a location other than at the
Orthodontic Offices.
2.2 Orthodontic Office Services. The MSO shall provide or arrange for the
provision of the office space and related leasehold improvements to constitute
the Orthodontic Offices and related fixtures, furniture, furnishings, equipment
and related services (collectively, the "Orthodontic Office Services") described
in Schedule 2 hereto, as such Schedule may be amended by the New PC and the MSO
from time to time. The MSO shall be responsible for all repairs, maintenance and
replacement of the Orthodontic Offices including such leasehold improvements,
fixtures, furniture, furnishings and equipment, except for repairs, maintenance
and replacement necessitated by the negligence of the New PC, its employees and
agents (not including the MSO or its employees or agents). The MSO shall, on an
ongoing basis, evaluate and consult with the New PC on the equipment needs of
and the efficiency and adequacy of the Orthodontic Offices. The MSO shall
provide telephone, facsimile transmission, printing, duplicating and
transcribing services as needed, as well as all laundry, linen and uniforms.
2.3 Administrative Services
(a) The MSO shall supply secretarial, reception, maintenance, front office,
skilled assistants and other personnel, except duly licensed "Practice
Providers," during normal office hours as reasonably requested by the New PC, to
enable the New PC to perform effectively orthodontic and treatment services. The
MSO shall be responsible for staff scheduling, provided, however, that all
Practice Providers including orthodontic assistants and hygienists shall be
under the direct supervision of the New PC. The New PC shall have sole authority
to employ and terminate the employment of all Practice Providers. All personnel
placed in the Orthodontic Offices by the MSO shall be subject to the approval of
the New PC, which approval shall not be unreasonably withheld, and the New PC
shall have the authority to instruct the MSO to terminate the employment of such
personnel for any lawful reason. The MSO shall be responsible for all personnel
wages,
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withholding, fringe benefits, bonuses and workers' compensation insurance in
connection with its employees; provided, however, that the New PC is in full
compliance with the compensation provisions of this Agreement.
(b) "Practice Providers" shall mean the individuals who are duly licensed
to practice dentistry and/or orthodontics in the State including Xx. Xxxxxxx and
the Orthodontists (if any) and other individuals who are employees of the New PC
or otherwise under contract with the New PC to provide dental or orthodontic,
hygienic or other assistance or services to patients of the New PC or otherwise
required by applicable "Laws" (as defined in Section 2.6 below) to be employees
of the New PC to provide services to patients of the Practice. A list of all
Practice Providers and their relationship to the New PC is set forth as Exhibit
B attached hereto and incorporated herein by reference. Prior to making any
changes in the list of Practice Providers, the New PC shall use its best efforts
to consult with the MSO. The New PC also shall use its best efforts to consult
with the MSO with regard to the terms of contracts entered into between the New
PC and the Practice Providers and the terms and conditions of their employment
or engagement as independent contractors.
2.4 Business Systems, Procedures and Forms. In consultation with the New
PC, the MSO shall establish standardized business systems and procedures for the
New PC, including, but not limited to, patient scheduling systems, treatment
records system, financial reporting and process control systems and patient
communication management systems (the "OMEGA Patient Scheduling System") that
are designed to improve the New PC operating efficiency. The MSO shall analyze
such information on an ongoing basis in order to advise the New PC on ways of
improving operating efficiencies. The MSO shall provide training to the staff of
the New PC in the implementation and operation of such standardized business
systems and procedures. The MSO shall additionally provide the New PC with and
train the New PC's staff in the use of standardized clinical forms, including,
without limitation, forms for patient evaluations and treatment plans. The New
PC expressly acknowledges and agrees that it shall have no property rights in
the OMEGA Patient Scheduling System and the other foregoing systems, procedures
and clinical forms, and further agrees that such systems, procedures, and forms
shall be deemed to constitute Confidential Information within the meaning of
Section 3.8 hereof and be subject to the restrictions on the use, appropriation,
and reproduction of such Confidential Information provided for in Section 3.8.
2.5 Purchasing, Accounts Payable, Supplies and Inventory Control. The MSO
shall be responsible for and shall establish and maintain systems for the
handling and processing of all purchasing and payment activities and for the
performance of all payroll and payroll accounting functions of the New PC. The
MSO shall order and purchase and maintain all inventory and orthodontic supplies
as reasonably required by the New PC to enable the New PC to render orthodontic
care to its patients including, without limitation, all orthodontic appliances
and other supplies, laboratory supplies and sanitation supplies.
2.6 Regulatory Compliance Services. The MSO shall arrange for or cause to
be rendered to the New PC such business, legal and regulatory management
consultation and advice as may be reasonably required or requested by the New PC
and directly related to the operations of the New PC or its compliance with
Federal, state or local laws, rules, regulations or interpretations governing or
applicable to the New PC (collectively, "Laws"); provided, however, that the MSO
shall not be responsible for any services related to malpractice or other
professional service claims or matters not directly related to the operation of
the New PC or its compliance with Laws, or for any legal or tax advice or
services or personal financial services to Xx. Xxxxxxx
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and the Orthodontists (if any) or any employee or agent of the New PC.
2.7 Billing, Collection. The MSO shall be responsible for: (i) billing and
collecting payments for all orthodontic and other professional services rendered
by the New PC and the Practice Providers, with all such billing and collecting
to be done in the name of the New PC; (ii) receiving payments from patients,
insurance companies and all other third party payors; (iii) taking possession of
and endorsing in the name of the New PC any notes, checks, money orders,
insurance payments and other instruments received in payment for services or of
accounts receivable; and (iv) settling and comprising claims and, where deemed
appropriate by the MSO and consented to (which consent shall not be unreasonably
withheld or delayed) by the Practice Provider rendering the professional
services which resulted in the applicable accounts receivable, assigning such
accounts receivable to a collection agency or the bringing of a legal action
against a patient or a payor on the New PC's behalf. In seeking payments on
behalf of the New PC hereunder, the MSO shall act as the New PC's agent in
billing and collecting professional fees, charges and other accounts owed to the
New PC and shall only xxxx under the New PC's provider number. In this regard,
the New PC appoints the MSO for the Term of this Agreement in accordance with
the provisions of Article 11 hereof as its true and lawful attorney-in-fact for
the purposes set forth above in this Section 2.7 and in Section 2.8 below. The
MSO does not guarantee collection and is not responsible for any loss to the New
PC as a result of any inability to collect fees and charges.
2.8 Disbursement of Funds.
(a) All monies collected for the New PC by the MSO pursuant to Section 2.7
above shall be deposited into an account (the "the New PC Account") with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation and
which bank is acceptable to the MSO and the New PC (the "Bank"). The New PC
Account shall contain the name of the New PC, but the MSO shall make all
disbursements therefrom. The MSO shall account for all monies so disbursed from
the New PC Account.
(b) From the funds collected and deposited by the MSO in the New PC
Account, the MSO shall make for and on behalf of the New PC the following
disbursements promptly, when payable:
(1) Compensation, including salaries, benefits and other direct costs
payable to Xx. Xxxxxxx and the Orthodontists (if any) and the other
Practice Providers of the New PC, and all withholding taxes and assessments
payable to Federal, state and local governments in connection with the
employment of such personnel; and
(2) All compensation payable to the MSO pursuant to Article 6 hereof.
(c) In the event the funds in the New PC Account will, at any time be
insufficient to cover the current portion of the foregoing expenses when
payable, the MSO may advance to the New PC the necessary funds to pay the
current portion of such expenses for the benefit of the New PC, which advances
will be deemed to be loans to the New PC to be repaid without interest from the
New PC Account at such times as there are adequate funds therein or upon such
other terms and at such times as agreed to by the New PC and the MSO, which
indebtedness shall not be deemed an MSO Expense for purposes of Section 2.9.
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2.9 MSO Expenses. The MSO shall be responsible for the payment of all MSO
Expenses, as defined below, during the term of this Agreement without
reimbursement by the New PC, unless otherwise agreed to by the parties hereto.
(a) "MSO Expenses" shall mean all operating and non-operating expenses
incurred in the operation of the New PC, including, without limitation:
(1) Salaries, benefits and other direct costs of all employees of the
MSO providing services to the New PC hereunder (but excluding Xx. Xxxxxxx
and all the Orthodontists (if any) and other Practice Providers);
(2) Direct costs of all employees or consultants of the MSO who
provide services at the Orthodontic Offices or in connection with the New
PC required for improved clinic performance, such as work management,
materials management, purchasing, charge and coding analysis, and business
office consultation;
(3) Corporate overhead charges or any other expenses of the MSO or any
corporation affiliated with the MSO other than the kind of items listed
above;
(4) Obligations of the MSO under leases or subleases entered into in
connection with the operation of the Orthodontic Offices as well as utility
expenses relating to the Orthodontic Offices;
(5) Personal property and intangible taxes assessed against the MSO's
assets used in connection with the operation of the Orthodontic Offices,
commencing on the date of this Agreement;
(6) In the event an opportunity arises for additional Orthodontists to
become employed by the New PC or other orthodontic entities to merge with
the New PC, actual out-of-pocket expenses of the MSO personnel working on a
specified employment arrangement or merger, whether or not such employment
arrangement or merger is consummated;
(7) Reimbursement to Xx. Xxxxxxx for "Approved Entertainment Expenses"
and "Approved Liability Insurance Expenses", "Approved Automobile Expenses"
and "Approved Educational Expenses" (as each are defined below); and
(8) Other expenses incurred by the MSO in carrying out its obligations
under this Agreement.
"MSO Expenses" shall not include:
(1) Any Federal, state or local income taxes of the New PC, Xx.
Xxxxxxx and the Orthodontists (if any) and the other Practice Providers, or
the costs of preparing Federal, state or local tax returns thereof;
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(2) Salaries, benefits and other direct costs of employing Xx. Xxxxxxx
and the Orthodontists (if any) and the other Practice Providers;
(3) Physician licensure fees, board certification fees and costs of
membership in professional associations and societies for Practice
Providers;
(4) Professional liability insurance for the Practice Providers as
provided for under Section 3.6 hereof, other than Approved Liability
Insurance Expenses;
(5) Costs of continuing professional education for Practice Providers,
including travel and related expenses, other than Approved Education
Expenses;
(6) Costs associated with legal, accounting and professional services
incurred by or on behalf of the New PC other than as otherwise expressly
provided for in Section 2.6 hereof;
(7) Liability judgments assessed against the New PC or the Practice
Providers in excess of policy limits or within the deductible limits of any
policy;
(8) Direct personal expenses of the Practice Providers of a kind which
the New PC may have historically provided or charged to its Practice
Providers (including, but not limited to, car allowances and other expenses
which are personal in nature) and other than Approved Entertainment
Expenses, Approved Liability Insurance Expenses, Approved Automobile
Expenses and Approved Educational Expenses; and
(9) Payment of or reimbursement for entertainment expenses or
automobile expenses other than Approved Automobile Expenses and Approved
Entertainment Expenses;
(10) Charitable contributions by the New PC; and
(11) Any other expenses which are expressly designated herein as
expenses or responsibilities of the New PC.
As used in this Agreement, "Approved Entertainment Expenses" means expenses
incurred by Xx. Xxxxxxx for the purpose of practice development that are
approved by Omega. As used in this Agreement, "Approved Liability Insurance
Expenses" means, on annual basis, an amount equal to the amount incurred for Xx.
Xxxxxxx'x liability insurance as shown in the September 30, 1996 statement of
financial and operating information prepared by Xx. Xxxxxxx for Omega (the
"Report"). As used in this Agreement "Approved Automobile Expenses" means, on an
annual basis, an amount equal to the amount incurred by Xx. Xxxxxxx for his
automobile as shown in the Report. As used in this Agreement "Approved
Educational Expenses" means, on an annual basis, an amount equal to the amount
incurred by Xx. Xxxxxxx for his profession and continuing education, including
travel and related expenses, as shown in the Report.
2.10 Credit Reports. When requested by the New PC, or its authorized
representative, the
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MSO shall obtain on behalf of the New PC information with regard to the ability
of patients to pay for the services to be rendered by the New PC. The MSO shall
collect all information and determine, to the best of its ability, whether or
not patients can pay for services rendered by the New PC, either in cash or by
insurance. Such determination shall be subject to the reasonable approval by the
New PC, and as between the New PC and the MSO, the New PC shall bear the risk of
claims by potential patients who may be denied credit.
2.11 Accounting; Bookkeeping and Reports. The MSO shall provide for or
arrange for all accounting and bookkeeping services related to the New PC's
operations, provided that such services are incurred in the ordinary course of
business. In addition, the MSO shall provide the New PC with an unaudited
internal monthly statement within twenty (20) days after the end of each month
and a quarterly review within thirty (30) days after the end of each quarter,
respectively, of the MSO's internal statements, as well as the books and records
of the New PC, all prepared by or with the assistance of an accountant chosen by
the MSO. At the end of each fiscal year of the New PC, the MSO shall arrange for
a financial statement with respect to the New PC to be prepared by the MSO's
accountant. At the New PC's request, the MSO shall prepare reports indicating
the gross revenues, number of patients, type of patients, and the activity and
the productivity of the New PC. The MSO shall assist and advise the New PC in
the financial management of the New PC.
2.12 Marketing. The MSO shall design and execute a marketing plan to
promote the New PC's professional services. The MSO shall also make available to
the New PC all brochures, contracts, and other materials reasonably related to
the carrying out of the business purposes of the New PC, including all
stationery, printing and postage costs in connection therewith. In connection
with such marketing plan, the MSO shall advise Xx. Xxxxxxx and the Orthodontists
(if any) on establishing and maintaining a plan for patients' payments for
orthodontic services on an installment plan basis. All marketing activities
hereunder shall be conducted in compliance with all applicable Laws governing
advertising by the orthodontic profession.
2.13 Complaints. The MSO shall assist the New PC in handling all
complaints, grievances and disputes involving the New PC and the Practice
Providers and any patients or third parties. However, the MSO shall have no
control over the New PC's patients. All decisions concerning the New PC's
patients shall be made by the New PC and the Practice Providers.
2.14 Practice Laws. Notwithstanding any provision in this Agreement, the
MSO shall not take any action in connection with the services to be rendered
hereunder that violates any Law, including, without limitation, the performance
of any task or the taking of any action which violates the Business and
Professions Code of the State as it relates to professional orthodontic
practices.
2.15 Monthly Meetings. The MSO shall initiate monthly or more frequent
meetings with the New PC regarding the policies and procedures for the operation
of the New PC.
2.16 Maintenance and Cleaning Services. The MSO shall arrange for security,
maintenance and cleaning of the Orthodontic Offices, including the furniture,
fixtures and equipment therein.
2.17 Licenses and Permits. The MSO shall provide all business and other
licenses and permits as necessary to operate the New PC except those related to
licensure and certifications of the Practice
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Providers. The MSO shall prepare and file all reports, forms and returns
required by Law in connection with workers' compensation, unemployment
insurance, social security and other similar Laws with respect to the MSO's
employees.
2.18 Insurance. The MSO shall provide and pay for customary office property
damage and liability, including business interruption insurance, not including
professional liability insurance (which shall be and remain the responsibility
of the New PC).
2.19 Practice Transition and Associate Selection. Xx. Xxxxxxx and the
Orthodontists (if any) shall keep the MSO informed of retirement goals on an
ongoing basis. Upon request of the New PC, the MSO will conduct a search for an
appropriate orthodontist and other professionals (collectively, "Practice
Associates") for the purposes of accommodating practice growth, reducing doctor
work schedule, or planned retirement. Such search shall include use by the MSO
of a national journal advertising program and networking in the profession to
locate appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
Notwithstanding the foregoing provisions of this Section 2.19, the parties
agree that, with respect to the retirement of Xx. Xxxxxxx, notice of which the
parties agree is hereby given, the following provisions shall apply:
(a) Xx. Xxxxxxx and the MSO shall begin promptly upon execution of this
Agreement to search for a qualified Practice Associate to replace Xx. Xxxxxxx
and each shall use all reasonable efforts in good faith to locate candidates for
such position;
(b) The MSO will screen all candidates, whether located by Xx. Xxxxxxx or
the MSO, will not unreasonably withhold its approval of any qualified candidate
located by Xx. Xxxxxxx and will present appropriate qualified candidates for
final selection by the New PC;
(c) The New PC shall be responsible for interviewing and selecting each
candidate to replace Xx. Xxxxxxx from the candidates presented by the MSO and,
once a candidate is selected, Xx. Xxxxxxx shall use all reasonable efforts to
see that such candidate successfully completes a six month trial period with the
New PC; and
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(d) It is understood that at the end of this trial period, either the New
PC or the candidate to replace Xx. Xxxxxxx may terminate the relationship. If
the relationship is terminated, the search process outlined in clauses (a)
through (d) of this Section 2.19 shall begin again. Any candidate to replace Xx.
Xxxxxxx who is accepted by the New PC shall be an employee of the Practice (if
so employed) and not of the MSO. The MSO will confer with the New PC on an
appropriate salary/work-in arrangement for such candidate and the final
arrangements shall be determined by the New PC and the Orthodontists (if any)
shall keep the MSO informed of retirement goals on an ongoing basis. Upon
request of the New PC, the MSO will conduct a search for an appropriate
orthodontist and other professionals (collectively, "Practice Associates") for
the purposes of accommodating practice growth, reducing doctor work schedule, or
planned retirement. Such search shall include use by the MSO of a national
journal advertising program and networking in the profession to locate
appropriate Practice Associates. The MSO estimates that it could take
approximately two years for such a search.
The MSO will provide screening of all applicants and will then present
appropriate applicants for final selection by the New PC. The New PC shall be
responsible for interviewing and selecting each Practice Associate.
After the Practice Associate(s) is (are) selected by the New PC, the MSO will
assist the New PC with a trial plan of approximately six months for the new
Practice Associate(s). It is understood that at the end of this period either
the New PC or the new Practice Associate may terminate the relationship. All
such Practice Associates recruited by the MSO as may be accepted by the New PC
shall be employees of the Practice (if so employed) and not of the MSO. The MSO
will confer with the New PC on an appropriate salary/work-in arrangement for the
new Practice Associate and the final arrangements shall be determined by the New
PC.
2.19 OMEGA. OMEGA shall cause the MSO to comply with its obligations under
this Article 2 and this Agreement.
ARTICLE 3
DUTIES OF THE NEW PC
3.1 General. The New PC shall be responsible for the management of its
practice and the Orthodontic Office, in accordance with the requirements of the
Laws of the State.
3.2 Employment of the Orthodontists and Rendering of Patient Care. The New
PC shall be responsible for the employment and professional supervision of Xx.
Xxxxxxx and all Orthodontists and the other Practice Providers and all
orthodontic care rendered to patients shall be rendered by Xx. Xxxxxxx and such
Orthodontists. Additionally, the New PC shall be responsible for the
professional supervision of all other Practice Providers in their rendering of
patient care.
3.3 Professional Services. The New PC shall use and occupy the Orthodontic
Offices designated on Schedule 2 hereof exclusively for the practice and
rendering of orthodontic services, and shall comply with all applicable Laws and
all standards of orthodontic care. It is expressly acknowledged by the parties
that the orthodontic practice conducted at the Orthodontic Offices shall be
conducted solely by Xx. Xxxxxxx and the Orthodontists and the other Practice
Providers acting under the supervision and control of Dr.
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Xxxxxxx and the Orthodontists (if any), and no other orthodontist shall be
permitted to use or occupy the Orthodontic Offices. The New PC shall provide
professional services to patients hereunder in compliance at all times with
ethical standards and Laws applying to the orthodontic profession. The New PC
shall ensure that Xx. Xxxxxxx and each Orthodontist who provides orthodontic
services to patients is licensed by the State. In the event that any
disciplinary, medical malpractice or other actions are initiated against Xx.
Xxxxxxx or any Orthodontist or other Practice Provider, the New PC shall
immediately inform the MSO of such action and the underlying facts and
circumstances subject to such confidentiality agreement or arrangements as the
New PC and the MSO shall mutually determine at or prior to the time of such
disclosure. The New PC agrees to cooperate with and participate in quality
assurance/utilization review programs established by the MSO or mandated by
accreditation and licensure standards applicable to the practice of
orthodontics. Deficiencies discovered in the performance of any personnel or in
the quality of professional services shall be reported immediately to the MSO,
and appropriate steps shall be taken by the New PC at once to remedy such
deficiencies.
3.4 Records. The New 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 all applicable Laws
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 MSO, on behalf of the New PC, to obtain payments for services and
related charges and to facilitate the delivery of quality patient care by the
New PC. Notwithstanding the foregoing, patient dental records shall be and
remain the property of the New PC and the contents thereof shall be solely the
responsibility of the New PC.
3.5 Professional Expenses. The New PC shall be solely responsible for the
cost of professional licensure fees and board certification fees, membership in
professional associations and continuing professional education incurred by each
Orthodontist and other Practice Provider employed by the New PC. The New PC
shall ensure that Xx. Xxxxxxx and all the Orthodontists employed by the New PC
participate in such continuing education as is necessary for Xx. Xxxxxxx and
such the Orthodontists to remain current.
3.6 Professional Liability Insurance. The New PC shall provide, or arrange
for the provision of, and maintain throughout the Term of this Agreement,
professional liability insurance coverage in accordance with the provisions of
Article 9 hereof. The New PC shall also cooperate in any programs recommended by
the MSO to assure that each of its Orthodontists is insurable, and that Xx.
Xxxxxxx and each Orthodontist participates in an on-going risk management
program.
3.7 Employment Agreement. The parties recognize that the services to be
provided by the MSO are feasible only if the New PC operates an active
orthodontic practice to which it, Xx. Xxxxxxx and each Orthodontist associated
with the New PC devote their full time and attention, unless other specific
provisions are made in writing and mutually agreed upon by the MSO and New PC.
The New PC will cause Xx. Xxxxxxx and each individual Orthodontist who now is or
hereafter becomes affiliated with the New PC to enter into a written employment
agreement (the "Employment Agreement") satisfactory in form and substance to the
MSO and Xx. Xxxxxxx, pursuant to which Xx. Xxxxxxx or the Orthodontist shall
agree not to establish, operate or provide orthodontic or dental services,
without the prior written consent of both the New PC and the MSO, at any office
or facility other than the Orthodontic Office. In addition, such Employment
Agreement shall provide by its own
10
terms or by a separate agreement that if Xx. Xxxxxxx'x or such Orthodontist's
employment shall terminate for any reason during the Term of this Agreement,
including without limitation termination upon the sale of the New PC, for a
period of 24 months after the termination of Xx. Xxxxxxx'x or such
Orthodontist's Employment Agreement with the New PC, Xx. Xxxxxxx or such
Orthodontist shall agree not to establish, operate or provide orthodontic or
dental services, without the prior written consent of both the New PC and the
MSO, at any office practice or facility whatsoever providing services similar to
those provided by the New PC at any orthodontic office within a ten (10) mile
radius. Such Employment Agreement (or separate agreement) shall also provide,
among other things, that in the event of a breach of Xx. Xxxxxxx'x or the
Orthodontist's agreement not to compete with the New PC provided for in such
Employment Agreement (or separate agreement), the MSO shall be entitled to
receive, in addition to other remedies and not by way of an election of
remedies, liquidated damages equaling the greater of: (a) Xx. Xxxxxxx'x or such
Orthodontist's income, as shown on the W-2 form prepared by the New PC, for the
most recent calendar year; or (b) $300,000. Such payment shall be made to the
MSO by the New PC immediately following receipt of the payment from Xx. Xxxxxxx
or the breaching Orthodontist by the New PC. Each of the MSO and OMEGA shall be
expressly named as a third-party beneficiary to such agreements between the New
PC and Xx. Xxxxxxx and each Orthodontist and the rights and remedies of the MSO
and OMEGA thereunder or otherwise in respect of the restrictive covenants set
forth in such agreements shall survive termination of this Agreement.
3.8 Confidentiality. (a) The New PC agrees and acknowledges that all
materials provided by the MSO to the New PC constitute "Confidential
Information" and are disclosed in confidence and with the understanding that it
constitutes valuable business information developed by the MSO with the
assistance of OMEGA at great expenditures of time, effort and money. The New PC
further agrees that it shall not, directly or indirectly, without the express
prior written consent of the MSO, use or disclose such Confidential Information
for any purpose other than in connection with the services to be rendered
hereunder. The New PC further agrees: (i) to keep strictly confidential and hold
in trust all Confidential Information and not disclose such Confidential
Information to any third party, including its shareholders, directors, officers,
affiliates, partners, employees and independent contractors without the express
prior written consent of the MSO; and (ii) to impose this obligation of
confidentiality on its shareholders, directors, officers, affiliates, partners,
employees and independent contractors. The New PC acknowledges that the
disclosure of Confidential Information to it by the MSO is done in reliance upon
its representations and covenants in this Agreement. Upon expiration or
termination of this Agreement by either party for any reason whatsoever, the New
PC shall immediately return and shall cause its shareholders, directors,
officers, affiliates, partners, shareholders and independent contractors to
immediately return to the MSO all Confidential Information, and the New PC will
not, and will cause its affiliates, partners, employees and independent
contractors not to, thereafter use, appropriate, or reproduce such Confidential
Information. The New PC further expressly acknowledges and agrees that any such
use, appropriation or reproduction of any such Confidential Information by any
of the foregoing after the expiration or termination of this Agreement will
result in irreparable injury to the MSO and OMEGA, that the remedy at law for
the foregoing would be inadequate, and that in the event of any such use,
appropriation, or reproduction of any such Confidential Information after the
termination or expiration of this Agreement, the MSO and OMEGA, in addition to
any other remedies or damages available to either or both of them, shall be
entitled to injunctive or other equitable relief without the necessity of
proving actual damages but such rights to relief shall not preclude the MSO and
OMEGA from other remedies which may be available to either or both of them
hereunder.
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(b) The MSO agrees and acknowledges that all materials provided by the New
PC constitute "Confidential Information" and are disclosed in confidence and
with the understanding that, except for "Required Disclosure" (as defined below)
it constitutes valuable business information developed by the New PC at great
expenditures of time, effort and money. The MSO further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
New PC, or as required by Required Disclosure, use or disclose such Confidential
Information for any purpose other than in connection with the services to be
rendered hereunder. The MSO further agrees that except as required by Required
Disclosure it shall: (i) keep strictly confidential and hold in trust all
Confidential Information and not disclose such Confidential Information to any
third party, including its shareholders, directors, officers, affiliates,
partners, employees and independent contractors without the express prior
written consent of the New PC; and (ii) impose this obligation of
confidentiality on its shareholders, directors, officers, affiliates, partners,
employees and independent contractors. The MSO acknowledges that the disclosure
of Confidential Information to it by the New PC is done in reliance upon its
representations and covenants in this Agreement. Upon expiration or termination
of this Agreement by either party for any reason whatsoever, the MSO shall
immediately return and shall cause its shareholders, directors, officers,
affiliates, partners, shareholders and independent contractors to immediately
return to the New PC all Confidential Information, and the MSO will not, and
will cause its affiliates, partners, employees and independent contractors not
to, thereafter use, appropriate, or reproduce such Confidential Information. The
MSO further expressly acknowledges and agrees that any such use, appropriation
or reproduction of any such Confidential Information by any of the foregoing
after the expiration or termination of this Agreement will result in irreparable
injury to the New PC and Xx. Xxxxxxx and that the remedy at law for the
foregoing would be inadequate, and that in the event of any such use,
appropriation, or reproduction of any such Confidential Information after the
termination or expiration of this Agreement, the New PC and Xx. Xxxxxxx, in
addition to any other remedies or damages available to either or both of them,
shall be entitled to injunctive or other equitable relief without the necessity
of proving actual damages but such rights to relief shall not preclude the New
PC and Xx. Xxxxxxx from other remedies which may be available to either or both
of them hereunder. Notwithstanding anything to the contrary in this Section
3.8(b), the MSO and OMEGA shall be permitted to and shall disclose any
information, including Confidential Information, provided by the New PC, as
required by Required Disclosure. As used in this Agreement, "Required
Disclosure" means any disclosures required be made under Law, including federal
or state securities laws, or pursuant to court order, and any disclosures to
preserve the rights of the MSO and OMEGA under the Stock Put/Call Option and
Successor Designation Agreement.
ARTICLE 4
PROFESSIONAL SERVICES, CONTROL OF SOLICITATION,
APPROVAL OF ADVERTISING MATERIAL AND NO RECIPROCATION
4.1 A fundamental understanding between the parties hereto is that the
rendering of orthodontic services shall be separate and independent from the
provision of administrative, management and support services by the MSO. Thus,
the New PC shall have sole and absolute control of the delivery of all
professional services and treatment rendered to patients at the Orthodontic
Offices.
4.2 No employee or other representative of the MSO shall be engaged in, or
allowed to
12
solicit patients on behalf of, the New PC, nor shall the MSO have any control
over the New PC's patients.
4.3 No advertising or promotional materials, or other materials of any
nature, including billing and collection forms, reports, agreements,
correspondence, or similar materials, used in connection with the New PC shall
be used or distributed without having first been approved by the New PC.
4.4 The parties hereby acknowledge and agree that the benefits conferred
upon each of them hereunder neither require nor are in any way contingent upon
the admission, recommendation, referral, or any other arrangement for the
provision of any item or service offered by the MSO to any patients of the New
PC or its shareholders, officers, directors, employees, contractors or agents,
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 the
New PC or any of its Practice Providers, employees, contractors or agents.
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ARTICLE 5
LEASE OF OFFICE FACILITIES AND EQUIPMENT
5.1 In consideration of the sums to be paid to the MSO under the terms of
this Agreement, the MSO hereby leases or sub-leases, as applicable, to the New
PC during the Term of this Agreement the Orthodontic Offices, and the leasehold
improvements and fixtures, furniture and equipment at the Orthodontic Offices as
listed from time to time on Schedule 2 attached hereto and incorporated herein
by this reference, under the following terms and conditions:
(a) The MSO is the lessee by assignment under lease for the premises
occupied by the New PC (collectively, the "Master Lease") a copy of which is
attached hereto as Exhibit A and incorporated herein by this reference. The New
PC hereby acknowledges that the premises described under the Master Lease are
suitable for the New PC's orthodontic practice. Based and contingent upon the
New PC's promise to timely pay all amounts due under this Agreement, the MSO
hereby agrees to sublease the leased premises to the New PC upon the following
terms and conditions:
(i) This sublease between the MSO and the New PC of the premises shall
be subject to all of the terms and conditions of the Master Lease. In the
event of the termination of the MSO's interest as lessee under the Master
Lease for any reason, then the sublease created hereby shall simultaneously
terminate, unless the New PC assumes the obligations under the Master Lease
in question and the Lessor consents thereto.
(ii) All of the terms and conditions contained in the Master Lease are
incorporated herein as terms and conditions of the sublease (with each
reference therein to "Lessor" and "Lessee," to be deemed to refer to the
MSO and the New PC, respectively) and, along with the provisions of this
Section 5.1(b) and Exhibit "A," shall be the complete terms and conditions
of the sublease created hereby.
(iii) Notwithstanding the foregoing, as between the MSO and the New
PC, the MSO shall remain responsible for meeting the obligations of
"Lessee" under the sections entitled Rent, Additional Rent Adjustment,
Insurance on Fixtures, Liability Insurance, Repairs, and Taxes of the
Master Lease, all of which obligations shall be considered MSO Expenses
hereunder and the New PC shall have no monetary obligation in that regard.
In addition, as between the MSO and the New PC, the MSO shall retain the
right to exercise any options to purchase the premises, or other similar
rights of ownership or possession, which may be granted under the Master
Lease, and the New PC shall have no rights in that regard.
(iv) In the event this Agreement is terminated according to its terms,
this sublease shall also terminate automatically.
(v) If the Master Lease contains an option to renew the terms thereof,
the MSO shall notify the New PC, at least 30 days prior to the expiration
of the time for exercising such option, of
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the MSO's intention to renew or not to renew such term. If the MSO
determines not to renew such term, the MSO shall provide or arrange for the
provision of comparable office space (the "Substitute Orthodontic Office")
within a radius of fifteen (15) miles of the Orthodontic Office, which
Substitute Orthodontic Office shall be subject to the approval of the New
PC (which approval shall not be unreasonably withheld or delayed). The
lease or sublease for such Substitute Orthodontic Office, as applicable,
shall be substituted for the lease described on Exhibit A hereto and all
references to the "Master Lease" shall thereafter be applicable to the
lease or sublease for the Substitute Orthodontic Office for purposes of
this Agreement, ab initio.
(vi) The Alternative Dispute Resolution provisions set forth in
Article 14 of this Agreement shall not apply to any issues concerning the
Sub-Lease, the New PC's tenancy or the MSO's rights and remedies as
Sub-Lessor.
5.2 The MSO shall provide the New PC at the Orthodontic Offices such
additional leasehold improvements, fixtures, furniture, furnishings and
equipment as may be mutually agreed to with the New PC and reflected from time
to time on a supplement to Schedule 2 hereto. The use by the New PC of all
leasehold improvements, fixtures, furniture, furnishings and equipment provided
hereunder shall be subject to the following conditions:
(a) Title to all such leasehold improvements, fixtures, furnishings,
furniture and equipment shall remain in the MSO and upon termination of this
Agreement, the New PC shall immediately return and surrender all such leasehold
improvements, fixtures, furniture, furnishings and equipment to the MSO in as
good condition as when received, normal wear and tear excepted.
(b) The MSO shall be fully and entirely responsible for all repairs and
maintenance of all such leasehold improvements, fixtures, furniture, furnishings
and equipment; provided, however, that the New PC agrees that it will use its
best efforts to prevent damage, excessive wear, and breakdown of all such
leasehold improvements, fixtures, furniture, furnishings and equipment, and
shall advise the MSO of any and all needed repairs and equipment failures.
(c) The obligation of the MSO to provide the leasehold improvements,
fixtures, furniture, furnishings and equipment stated herein shall be concurrent
and co-extensive with the Term of this Agreement.
5.3. No Warranty.
(a) THE NEW PC ACKNOWLEDGES THAT THE MSO MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE SUITABILITY OR ADEQUACY OF ANY
LEASEHOLD IMPROVEMENTS, FIXTURES, FURNITURE, FURNISHINGS, EQUIPMENT, INVENTORY
OR SUPPLIES PROVIDED OR LEASED OR SUBLEASED PURSUANT TO THIS AGREEMENT FOR THE
CONDUCT OF AN ORTHODONTICS PRACTICE OR FOR ANY OTHER PARTICULAR PURPOSE.
15
(b) Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Practice Providers to select and use
fixtures, furniture, furnishings and equipment, inventory and supplies purchased
or provided by the MSO in accordance with the provisions of this Agreement
insofar as such selection or use constitutes or might constitute the practice of
dentistry or orthodontics.
ARTICLE 6
COMPENSATION
As consideration for the performance of all of its duties and obligations
as provided in this Agreement, including but not limited to, the costs and
expenses associated with furnishing the services, personnel, facilities,
leasehold improvements, fixtures, furniture, furnishings, equipment, inventories
and supplies provided for herein, the MSO shall receive compensation in the form
of monthly management fees (the "Management Fees") based upon a predetermined
percentage of the "Practice Revenues", as defined and determined in accordance
with the provisions set forth in Schedule 3 attached hereto and incorporated
herein by this reference, as such Schedule may be amended by the New PC and the
MSO from time to time. It is acknowledged by and between the parties hereto that
the MSO and/or its affiliates has (have) incurred substantial expenses and
future obligations in acquiring the capital stock of the MSO, acquiring or
otherwise establishing the Orthodontic Offices, establishing its systems,
including fees for consultants and other professionals, interest expense, lease
obligations, and costs of furnishing or refurbishing the premises at which the
Orthodontic Offices are located. The MSO has also assumed substantial
obligations associated with the continuing operation of the Orthodontic Offices,
including those of lessee, obligor and guarantor and obligor on loans to
establish and operate the Orthodontic Offices. The parties, therefore, having
considered various compensation formulae, acknowledge and agree that in order
for the MSO to receive a fair and reasonable return for its expenses and
obligations, and a fair return for the lease of the premises and equipment and
for providing the services contemplated hereunder, that the agreed compensation
is not excessive. In consideration of the foregoing, the parties agree that the
monthly Management Fees payable to the MSO by the New PC for services rendered
pursuant to this Agreement shall be reviewed and subject to adjustment at the
close of each year of the Term of this Agreement based upon industry standards
of practice and the MSO's costs in performing the required services. If the
parties cannot agree within thirty (30) days prior to the close of any such year
on the terms of any adjustment to the Management Fees for the following year,
then the then existing Management Fees shall remain in effect. The New PC
specifically agrees that the MSO may defer actual receipt of its Management Fees
and/or advance monies for purposes of managing the New PC's cash flow, and the
MSO may repay itself such advances or pay said deferred Management Fees when it
deems appropriate.
ARTICLE 7
SECURITY INTEREST
As assurance and collateral security for the payment of the monthly
Management Fees owed to the MSO pursuant to this Agreement and any funds
advanced by the MSO to or on behalf of the New PC pursuant to this Agreement and
for the faithful and timely performance of all the covenants and conditions to
be performed
16
by the New PC under this Agreement, the New PC hereby pledges, grants, bargains,
assigns and transfers to the MSO a security interest, pursuant to the Uniform
Commercial Code of the State, in and to five hundred thousand dollars ($500,000)
of Practice Revenue and accounts receivable of patients of the New PC, together
with all proceeds thereof (collectively, the "Collateral"), and further agrees
not to pledge, assign, transfer or convey any of the Collateral or any proceeds
therefrom, without the prior written consent of the MSO, except to affiliates of
the MSO. Concurrent with the execution of this Agreement, the New PC shall
execute a Security Agreement, similar in form and content as that attached
hereto as Exhibit D and incorporated herein by this reference in order that the
MSO may perfect its interest in the Collateral. The New PC expressly agrees to
execute any appropriate UCC-1 Financing Statement and UCC-1 Fixture filings, if
so requested in writing by the MSO.
ARTICLE 8
COVENANTS
8.1 New PC's Covenants. As further consideration for the MSO's performance
of the terms and conditions of this Agreement, the New PC covenants, represents
and warrants as follows (which covenants, representations and warranties shall
survive the execution of this Agreement):
(a) The New PC shall comply with all Laws and ethical and professional
standards applicable to the practice of orthodontics and to cause all of its
employees to do the same.
(b) The New PC shall provide quality services and shall cause Xx. Xxxxxxx
and the Orthodontists (if any) (to serve the orthodontic needs of the patients
of the New PC. The New PC covenants to monitor rigorously utilization and
quality of services provided at the Orthodontic Offices and shall take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
orthodontic care provided.
(c) During the Term of this Agreement, the New PC shall not, directly or
indirectly, own an interest in, operate, join, control, participate in or be
connected in any manner with any corporation, partnership, proprietorship, firm,
association, person or entity providing orthodontic care in competition with the
practice at the Orthodontic Offices, or any other orthodontic practice managed
by the MSO, within a radius of ten (10) miles of the Orthodontic Office or of
such other orthodontic practice, without the MSO's prior written consent.
Teaching and/or consulting by Xx. Xxxxxxx shall not be considered to violate
this Section 8.1(c).
(d) The New PC recognizes the proprietary interest of OMEGA in and to its
OMEGA Patient Scheduling System and the MSO in its systems for managing the
delivery of orthodontic care and all policies, procedures, operating manuals,
forms, contracts and other information (collectively, the "MSO Information")
regarding such system. The New PC acknowledges and agrees that all information
relating to the OMEGA Patient Scheduling System and the MSO Information
constitutes trade secrets of OMEGA and/or the MSO. The New PC hereby waives any
and all right, title and interest in and to such trade secrets and agrees to
return all copies of such trade secrets and information relating thereto, at its
expense, upon termination of this Agreement.
(e) The New PC acknowledges and agrees that OMEGA and the MSO are entitled
to
17
prevent their respective competitors from obtaining and utilizing their
respective trade secrets. The New PC agrees to hold OMEGA'S and the MSO's trade
secrets in strictest confidence and not to disclose them or allow them to be
disclosed directly or indirectly to any person or entity other than persons who
are engaged by the New PC to perform duties in connection with the New PC and
who have a need to know such trade secrets in the performance of their duties
for the New PC, without OMEGA's or the MSO's prior written consent, as the case
may be. The New PC acknowledges its fiduciary obligations to OMEGA and the MSO
and the confidentiality of its relationships with OMEGA and the MSO and of any
information relating to the services and business methods of OMEGA and the MSO
which it may obtain during the term of this Agreement. The New PC shall not,
either during the term of this Agreement or at any time after the expiration or
sooner termination hereof, disclose to anyone, other than employees or
independent contractors of OMEGA and the MSO who use OMEGA's and the MSO's
system in the course of the performance of their duties, any confidential or
proprietary information or trade secrets obtained by the New PC. The New PC also
agrees to place any persons to whom said information is disclosed for the
purpose of performance under legal obligation to treat such information as
strictly confidential.
8.2 MSO's Covenants. As further consideration for the New PC's performance
of the terms and conditions of this Agreement, the MSO covenants, represents and
warrants (which covenants, representations and warranties shall survive the
execution of this Agreement) that during the Term of this Agreement, the MSO
agrees not to establish, develop or open any offices in affiliation with an
orthodontist for the provision of orthodontic services within a ten (10) mile
radius of the Orthodontic Offices, without the express written consent of the
New PC.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1 Insurance to be Maintained by the New PC. Throughout the Term of this
Agreement, the New PC shall maintain in full force and effect comprehensive
professional liability insurance with limits of not less than $500,000 per
occurrence and $1,000,000 annual aggregate per Xx. Xxxxxxx and each of the
Orthodontists providing services for the New PC and a separate limit for the New
PC. The New PC shall be responsible for all liabilities within deductibles and
for all liabilities in excess of the limits of such policies. The MSO agrees to
negotiate for and cause premiums to be paid on behalf of the New PC with respect
to such insurance. Premiums and deductibles with respect to such policies shall
not be MSO Expenses. The New PC also agrees to name the MSO and OMEGA as
co-insureds. The New PC agrees to deliver to the MSO and OMEGA a certificate of
insurance indicating such coverage.
9.2 Insurance to be Maintained by the MSO. Throughout the Term of this
Agreement, the MSO will use reasonable efforts to provide and maintain, as a MSO
Expense, (a) comprehensive professional liability insurance for all professional
employees of the MSO with limits as determined reasonable by the MSO; and (b)
comprehensive general liability and property insurance covering the Orthodontic
Office premises and operations.
9.3 Tail Insurance Coverage. The New PC will cause Xx. Xxxxxxx and each
Orthodontist (if any) providing services to enter into an agreement with the New
PC that upon termination of Xx. Xxxxxxx'x or such Orthodontist's relationship
with the New PC, for any reason, tail insurance coverage will be purchased by
18
Xx. Xxxxxxx or such Orthodontist. Such provisions may be contained in an
employment agreement, restrictive covenant agreement or other agreement entered
into by the New PC and Xx. Xxxxxxx or the Orthodontist, and the New PC hereby
covenants with the MSO to enforce such provisions relating to the tail insurance
coverage or to provide such coverage at the expense of the New PC or Xx. Xxxxxxx
or each such Orthodontist.
9.4 Additional Insureds. The New PC and the MSO agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective liability insurance policies.
9.5 Indemnification. The New PC shall indemnify, hold harmless and defend
the MSO and OMEGA and their respective officers, directors, shareholders,
employees and representatives, from and against any and all liability, losses,
damages, claims, causes of action, expenses judgments, settlements, lawsuits and
obligations (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 orthodontic services or the performance of any
intentional acts, negligent acts or omissions by the New PC and/or its
affiliates, its shareholders, agents, the Practice Providers, its other
employees and/or its subcontractors (other than the MSO) during the Term hereof.
The MSO shall indemnify, hold harmless and defend the New PC, its officers,
directors, shareholders 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 the MSO and/or its shareholders, agents,
employees and/or subcontractors (other than the New PC) during the Term hereof.
ARTICLE 10
TERMINATION
10.1 Termination by the New PC.
(a) Termination by the New PC. The New PC may terminate this Agreement as
follows:
(1) In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by the MSO, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by the MSO, except for the filing
of a petition in involuntary bankruptcy against the MSO which is dismissed
within sixty (60) days thereafter, the New PC may give written notice of
the immediate termination of this Agreement.
(2) In the event the MSO shall default in the performance of any
material duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of sixty (60) days after written notice
thereof has been given to the MSO by the New PC, the New PC may terminate
this Agreement.
Upon termination of this Agreement by the Orthodontic Practice under this
Section 10.1, the New PC shall be entitled to exercise the "Call Option," as
defined in and on the terms and conditions set forth in Section 3 of that
certain Stock Put/Call Option and Successor Designation Agreement (the "Stock
Put/Call Option and Successor Designation Agreement") dated as of even date
herewith, by and among the New PC, Xx. Xxxxxxx and the Orthodontists (if any),
OMEGA and the MSO.
19
10.2 Termination by MSO. MSO may terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the New PC or any shareholders
thereof, or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the New PC or any
shareholders thereof, except for the filing of a petition in involuntary
bankruptcy against the New PC or any shareholder thereof which is dismissed
within sixty (60) days thereafter, MSO may give written notice of the immediate
termination of this Agreement.
(b) In the event the New PC fails to perform orthodontic services on a
full-time basis consistent with its pattern of practice in the immediately
preceding calendar year and such default shall continue for a period of ten (10)
days after written notice thereof has been given to the New PC by the MSO, the
MSO may terminate this Agreement.
(c) In the event the New PC shall default in the performance of any other
material duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to the New PC by the MSO, the MSO may terminate this Agreement.
(d) In the event Xx. Xxxxxxx or any Orthodontist breaches or defaults under
his or her Employment Agreement and the New PC does not cause Xx. Xxxxxxx or
such Orthodontist to cure such breach or default within any applicable grace
period therefor, the MSO may give written notice of the immediate termination of
this Agreement.
Upon termination of this Agreement by the MSO under this Section 10.2 or
upon expiration of the Term of this Agreement, the MSO and OMEGA shall be
entitled to exercise the "Put Option" and/or the "Successor Designation Option,"
as defined in and on the terms and subject to the conditions set forth in
Sections 2 and 5, respectively, of the Stock Put/Call Option and Designation
Agreement. In addition, upon any termination of this Agreement or upon
expiration of the Term of this Agreement, the MSO shall be entitled to receive
the Management Fees collected to the effective date of such termination or
expiration, the amounts of any loans or advances (including any accrued but
unpaid interest thereon) and all other sums accrued or related to occurrences
arising at or prior to the date of termination.
20
ARTICLE 11
AUTHORIZED AGENT AND POWERS OF ATTORNEY
Unless and until there is an effective termination of this Agreement, the
New PC hereby designates the MSO (and its designees) its authorized agent and
lawful attorney-in-fact for purposes of depositing payments, paying accounts
payables, signing checks, negotiating and signing contracts for services or
goods, securing loans or incurring obligations on behalf of the New PC;
provided, however, that all contracts or fees set for services on behalf of the
New PC will be subject to final approval and acceptance by the New PC. Unless
and until there is an effective termination of this Agreement, the New PC hereby
appoints the MSO (and its designees) its authorized agent and lawful
attorney-in-fact to collect all bills and accounts receivable for professional
fees, charges and other amounts and authorizes the MSO through its designees to
take possession of all checks, money orders and similar instruments received as
payment of receivables to be deposited into the New PC Account. Unless and until
there is an effective termination of this Agreement, the New PC hereby appoints
the MSO as the New PC's attorney-in-fact, with full power and authority in the
place and stead of the New PC, in the MSO's discretion, to endorse in the name
of the New PC any checks, payments, notes, insurance payments and money orders,
to withdraw funds for payments of expenses, including Management Fees and other
sums payable to the MSO, to open and close the New PC Account and other bank
accounts, to take any action and to execute any other instrument which the MSO
may deem necessary or advisable to accomplish the purposes hereof. The powers of
attorney granted herein are coupled with an interest and are revocable only upon
an effective termination of this Agreement. Third parties and entities and
persons not a party to this Agreement are entitled to rely on the foregoing
attorneys-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of this
Agreement. Notwithstanding the foregoing powers of attorney, the New PC shall at
any time, on the request of the MSO, sign financing statements, security
agreements or other agreements necessary or advisable to accomplish the purpose
of this Agreement. Upon the New PC's failure to sign said financing statements,
security agreements or other agreements, the MSO is authorized as the agent of
the New PC to sign any such instruments. The New PC may review all deposits and
expenses upon request.
ARTICLE 12
INDEPENDENT CONTRACTOR RELATIONSHIP
Neither the New PC nor its employees shall have any claim under this
Agreement or otherwise against the MSO for worker's compensation, unemployment
compensation, sick leave, vacation pay, retirement benefits, Social Security
benefits, or any other employee benefits, all of which shall be the sole
responsibility of the New PC. Since neither the New PC nor its employees are
employees of the MSO, the MSO shall not withhold on behalf of the New PC
unemployment insurance, Social Security, or otherwise pursuant to any law or
requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of the New PC.
ARTICLE 13
MISCELLANEOUS
21
13.1 Access to Records. From and after any termination, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
13.2 Patient Records. Upon termination of this Agreement, the New PC shall
retain all patient dental records maintained by the New PC or the MSO in the
name of the New PC. During the term of this Agreement, and thereafter, the New
PC or its designee shall have reasonable access during normal business hours to
the New PC's and the MSO's records, including, but not limited to, records of
collections, expenses and disbursements as kept by the MSO in performing the
MSO's obligations under this Agreement, and the New PC may copy any or all such
records.
13.3 The New PC's Control Over the Orthodontic Practice. Notwithstanding
the authority granted to the MSO herein, the MSO and the New PC agree that the
New PC, personally or through Xx. Xxxxxxx or any of its Orthodontists (if any)
and other Practice Providers, shall have complete control and supervision over
the professional aspects of the New PC's practice, as well as the provision of
all professional services, including, without limitation, the selection of a
course of treatment for a patient, the procedures or materials to be used as a
part of such course of treatment, and the manner in which such course of
treatment is carried out by the New PC. The New PC shall have sole authority to
direct the business, professional, and ethical aspects of the New PC. The MSO
shall have no authority, directly or indirectly, to perform, and shall not
perform, any orthodontic function, or to influence or otherwise interfere with
the exercise of the New PC's professional judgment. The MSO may, however, advise
the New PC as to the relationship between its performance of orthodontic
functions and the overall administrative and business functioning of the New PC.
ARTICLE 14
ALTERNATIVE DISPUTE RESOLUTION
14.1 Alternative Dispute Resolution.
(a) If a dispute arises under this Agreement which cannot be resolved
informally by the parties, any party may invoke the procedures set forth in
Exhibit E hereto and the parties agree to use these procedures, except paragraph
(b) of this Section 14.1, prior to any party pursuing other available remedies.
The parties will meet and attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement.
(b) Notwithstanding anything in this Section 14.1 to the contrary:
(i) Nothing in this Section 14.1 shall preclude any party from seeking
a preliminary injunction or other provisional relief, either prior to or
during the proceeding provided for in this section, if in its judgment such
action is necessary to avoid irreparable damage or to preserve the status
quo.
(ii) The parties shall accept as correct, final, binding and
conclusive the determination by the outside accountants then employed by
the MSO as to the calculation of any and all Management Fees
22
owed by the New PC to the MSO hereunder, and such determination shall not
be subject to the provisions of this Section 14.1. Disputes as to the
proper interpretation of the provisions of this Agreement which describe
how those amounts are to be calculated, however, shall be subject to the
provisions of this Section 14.1.
(iii) Any determination by either party not to renew this Agreement in
accordance with the terms and provisions of this Agreement shall not be
subject to the provisions for dispute resolution in this Section 14.1.
ARTICLE 15
GENERAL PROVISIONS
15.1 Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective if given personally, or by telephone, telegram, telecopy,
facsimile or other electronic transmission, or by letter to an officer or
administrator of OMEGA, the MSO or the New PC, as the case may be. Notice in
person, or by telephone, telegram or electronic transmission shall be deemed
effective when given. Notice by mail shall be deemed effective seventy-two (72)
hours after deposit in the United States mails, and properly addressed with
postage prepaid.
Notices to the New PC shall be given as follows:
0000 Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx X. Xxxxxxx, D.D.S.
or such other address as may be furnished by the New PC to the MSO from time to
time in writing.
Notices to OMEGA and/or the MSO shall be given as follows:
Omega Orthodontics, Inc.
0000 Xxxxxx Xxxx Xxxx
Xxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxx
or other such addresses as may be furnished by the MSO to the New PC from time
to time in writing.
15.2 Confidentiality. No party hereto shall disseminate or release to any
third party any information regarding any provision of this Agreement, or any
financial information regarding the other parties (past, present or future) that
was obtained in the course of the negotiation of this Agreement or in the course
of the performance of this Agreement, without the other party's or parties' (as
the case may be) written approval;
23
provided, however, the foregoing shall not apply to information which is
required to be disclosed by Law, including federal or state securities laws, or
pursuant to court order.
15.3 Contract Modifications for Prospective Legal Events. In the event any
state or federal Laws, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel for both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such Laws,
the New PC and the MSO shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between the New PC and the MSO.
15.4 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
15.5 No Obligation to Third Parties. None of the obligations and duties of
the MSO or the New PC under this Agreement shall in any way or in any manner be
deemed to create any obligation of the MSO or of the New PC to, or any rights
in, any person or entity not a party to this Agreement other than OMEGA which
shall be deemed a party for limited purposes as set forth in this Agreement.
15.6 Entire Agreement. This Agreement including the Schedules and Exhibits
hereto, together with the Stock Put/Call Option and Successor Designation
Agreement of even date herewith and the Employment Agreement(s) (including the
related non-competition agreements or covenants), constitutes the entire
agreement between the parties concerning this subject matter, and supersedes all
prior and contemporaneous agreements, representations and understandings of the
parties concerning the contents hereof. No supplement, modification, or
amendment to this Agreement shall be binding unless executed in writing by all
of the parties hereto, except as otherwise provided herein. No waiver of any of
the provisions of this Agreement shall be deemed to constitute a waiver of any
other provision, whether similar or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.7 Assignment. The rights and the duties of the parties under this
Agreement may not be assigned or transferred without the prior written consent
of the non-assigning party, which consent shall not be unreasonably withheld;
provided, however, that the MSO shall be permitted to assign its rights and
obligations hereunder without the consent of the New PC to any person, firm or
corporation controlled by the MSO, controlling the MSO or under common control
with the MSO.
15.8 Attorneys' Fees. If any arbitration or other legal action or
proceeding is brought to enforce this Agreement, because of any alleged breach
hereof, or for a declaration of any rights and obligations hereunder, the
prevailing party in such arbitration, action or proceeding shall be entitled to
recover its costs incurred therein, including reasonable attorneys' fees, in
addition to any other relief to which it may be entitled, all as determined and
awarded by the arbitrator or court as part of its judgment or decision therein,
as the case may be. If the parties agree to take any dispute under this
Agreement to mediation, the costs of the mediator and the
24
mediation shall be borne equally by the parties hereto.
15.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State. The parties acknowledge that the MSO is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry or orthodontics. To the extent
any act or service required of the MSO in this Agreement should be construed or
deemed, by any governmental authority, agency or court to constitute the
practice of dentistry or orthodontics, the performance of said act or service by
the MSO shall be deemed waived and forever unenforceable and the provisions of
Section 15.14 shall be applicable.
15.10 Events Excusing Performance. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of supplies
or other events over which that party has no control for so long as such events
continue, and for a reasonable period of time thereafter.
15.11 Compliance with Applicable Laws. Both parties shall comply with all
applicable Laws and restrictions imposed thereunder in the conduct of their
obligations under this Agreement.
15.12 Language Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
15.13 Amendments. This Agreement may be amended only by the written consent
of both parties.
15.14 Severability. In the event any provision of this Agreement is held by
a court of competent jurisdiction to be illegal or unenforceable, (i) the
parties shall amend this Agreement in order to carry out the intent and
essential business purposes of this Agreement as closely possible within the
requirements of applicable provisions of Law as determined by such a court, and
(ii) the remaining provisions of this Agreement shall continue in full force and
effect.
15.15 No Waiver. The waiver by either party to this Agreement of any one or
more defaults, if any, on the part of the other party, shall not be construed to
operate as a waiver of the other or future defaults under this Agreement.
15.16 Captions. Captions to paragraphs in this Agreement are for ease of
reference, and shall not be considered an interpretation of the paragraph.
15.17 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original.
25
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
NEW PC:
By: _______________________________
Name:
Title:
MSO:
OMEGA ORTHODONTICS OF AUSTIN, INC.
By:_______________________________
Name:
Title:
OMEGA:
OMEGA ORTHODONTICS, INC.
By:_______________________________
Name:
Title:
26
SCHEDULE 1
THE ORTHODONTISTS
Name and Address
Xxxx X. Xxxxxxx, D.D.S.
0000 Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
27
SCHEDULE 2
ORTHODONTIC OFFICES AND SERVICES
[Xx. Xxxxxxx Attach]
28
SCHEDULE 3
COMPENSATION - MANAGEMENT FEES
The MSO shall receive, as compensation for the performance of all of its
obligations and duties contained in the Agreement, monthly Management Fees in an
amount equal to Seventy-Five Percent (75%) of the Practice Revenues, and the New
PC shall be entitled to Twenty-Five Percent (25%) of such Practice Revenues,
except as the parties may otherwise agree from time to time in writing. At the
end of each twelve (12) month period during the Term the MSO shall provide the
New PC with an unaudited internal accounting of the MSO Expenses, prepared in
accordance with the accrual method of accounting. If the MSO Expenses as
reflected in such accounting as having been paid by the MSO are less than sixty
(60%) percent of the Practice Revenues for such twelve month period, fifty (50%)
percent of such difference shall be returned by the MSO to the New PC as a
profit incentive rebate (the "Rebate"). If the Agreement to which this Schedule
3 is attached is terminated or expires, the foregoing Management Fees shall be
payable to the MSO based on all Practice Revenue collected as of the date of
termination or expiration.
Payment to the MSO shall be made in monthly installments based on the
Practice Revenues realized by the MSO for services rendered hereunder. The MSO
shall distribute the proceeds from the New PC Account and allocate the proceeds
between the MSO and the New PC as described above, on or before the 15th day of
the succeeding month. In the event the 15th day falls on a weekend or holiday,
then said distribution shall be made on the next business day. The parties
hereto may agree to handle such matters in a different manner.
For purposes of this Agreement, "Practice Revenues" shall mean gross
collections of all revenues generated by or on behalf of the New PC (whether
through subsidiaries or affiliates), including, but not limited to, all fees and
charges collected as a result of professional orthodontic services furnished to
patients by the New PC and for any other goods or services sold or provided to
such patients.
29
EXHIBIT A
ORTHODONTIC OFFICES - MASTER LEASE
[Xx. Xxxxxxx Attach]
30
EXHIBIT B
PRACTICE PROVIDERS
[Xx. Xxxxxxx Attach]
31
EXHIBIT C
INTENTIONALLY OMITTED
32
EXHIBIT D
SECURITY AGREEMENT
33
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is effective as of the ______ day of _________
1997, by _____________________, PC, a Texas corporation (the "New PC"), and Xxxx
X. Xxxxxxx, D.D.S. ("Xx. Xxxxxxx") who is duly licensed to practice orthodontics
in the State and Omega Orthodontics of Austin, Inc., a Delaware corporation (the
"MSO") with reference to the following facts:
WHEREAS, pursuant to a Management Services Agreement (the "Agreement"),
dated as of the date hereof, between the New PC and the MSO, as assurance and
collateral security for the payment of the monthly Management Fees owed to the
MSO pursuant to the Agreement and any funds advanced by the MSO to or on behalf
of the New PC pursuant to the Agreement and for the faithful and timely
performance of all the covenants and conditions to be performed by the New PC
under the Agreement (collectively, the "Obligations") the New PC agreed to
pledge, grant, bargain, assign and transfer to the MSO a security interest,
pursuant to the Uniform Commercial Code of the State, in and to Five Hundred
Thousand ($500,000) dollars in Practice Revenue and the accounts receivable of
patients of the New PC, together with all proceeds thereof (collectively, the
"Collateral");
WHEREAS, the New PC is obligated as a condition to the MSO's performance
under the Agreement to execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Grant of Security Interest. As and for collateral security for payment
by the New PC of the Obligations and any and all amounts payable under this
Security Agreement (collectively, the "Secured Obligations"), the New PC hereby
pledges, grants, bargains, assigns and transfers to the MSO, and grants to the
MSO a security interest in, the Collateral. Xx. Xxxxxxx shall cause the New PC
to perform fully and on a timely basis all of the New PC's obligations under
this Security Agreement. The MSO may at its option file a financing statement
(Form UCC-1) in order to perfect its security interest hereunder.
2. Representations and Warranties. The New PC represents and warrants all
of the accounts receivable constituting a portion of the Collateral of the New
PC pledged to the MSO are and will be validly created obligations of each of the
obligors who incurred same for services actually rendered in the ordinary course
of business of the New PC. Further, the New PC represents and warrants that the
Collateral is not subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person.
3. Release of Security Interest. Upon the termination of the Agreement and
payment in full of the accrued Management Fees thereunder and any and all other
Secured Obligations, the MSO shall release its security interest hereunder, and
will deliver to the New PC any property forming part of the Collateral delivered
to the MSO and then held by the MSO hereunder.
4. Realization of Collateral. The MSO shall have, with respect to the
Collateral, the rights and
34
obligations of a secured party under the Uniform Commercial Code as adopted in
the state of Texas (the "State"). Such rights shall include, without limitation,
the following:
A. The right, upon default, to have the Collateral, or any part thereof,
transferred to its own name or to the name of its nominee;
B. The right, upon default, to sell, assign or deliver as much of the
Collateral as is reasonably necessary to repay the defaulted indebtedness
(together with expenses attendant upon such sale and repayment), at public or
private sale, as the MSO may elect, either for cash or on credit, without
assumption of any credit risk and without demand or advertisement (unless
otherwise required by law).
C. The New PC hereby irrevocably authorizes the MSO to sign and file
financing statements naming the New PC as the debtor and the MSO as the secured
party, at any time with respect to any Collateral, without the signature of the
New PC. The New PC hereby irrevocably appoints the MSO as the New PC's
attorney-in-fact, with full authority in the place and stead of the New PC and
in the name of the New PC, from time to time in the MSO's discretion, to take
any action and to execute any instrument which the MSO may deem necessary or
advisable to accomplish the purposes hereof. The attorney-in-fact granted herein
is coupled with an interest and is irrevocable. Third parties and entities and
persons not a party to this Security Agreement are entitled to rely on this
attorney-in-fact and an affidavit of the MSO attesting thereto. The acceptance
of this appointment by the MSO shall not obligate it to perform any duty or
covenant required to be performed by the New PC under or by virtue of the
Collateral. Notwithstanding the foregoing power of attorney, the New PC shall at
any time on the request of the MSO, sign Financing Statements, security
agreements or other agreements with respect to any Collateral. Upon the New PC's
failure to sign said Financing Statements, security agreements or other
agreements, the MSO is authorized as the agent of the New PC to sign any such
instruments. Upon the request of the MSO, the New PC agrees to pay all filing
fees and to reimburse the MSO on demand for all costs and expenses of any kind
(including, without limitation, legal fees) incurred in any way in connection
with the Collateral.
5. Purchase of Collateral. At any such private or public sale of the
Collateral or part thereof, the MSO may purchase and pay for the same by
cancellation of such portion of the Obligations, equal to the purchase price and
free of any right of redemption on the part of the New PC. the MSO agrees,
however, that the New PC shall have all rights, including rights of notice,
provided by the Uniform Commercial Code as adopted in the State. In any case
where notice is required, five days' notice shall be deemed reasonable notice.
In the event of any sale hereunder, the MSO shall apply the proceeds in the
order set forth below in Paragraph 6 hereof. the MSO may have resort to the
Collateral or any portion thereof with no requirements on the part of the MSO to
proceed first against any other person or property.
6. Application of Collateral. Proceeds from the sale of the Collateral or
any part thereof shall be applied by the MSO in the following order:
A. To the payment of the costs and expenses of collection incurred by the
MSO, including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by the MSO in connection therewith;
35
B. To the payment of the whole amount then owing and unpaid for advances
and/or Management Fees;
C. To the payment in full of all other Obligations of the New PC under the
Agreement; and
D. To the payment to the New PC of any surplus then remaining from such
proceeds.
7. Extension of Agreement. No renewal or extension of the Agreement, no
release or surrender of any Collateral given as security in connection
therewith, and no delay in enforcement thereof or in exercising any right or
power with respect thereto or hereunder shall affect the rights of the MSO with
respect to the Collateral or any part thereof.
8. Notices. Any notice to be given pursuant to this Agreement shall be
deemed effective the same day when such notice is given personally, or by
telegram, or electronic transmission to the President of the party to whom
notice is being given. Notice by mail shall be deemed effective three days after
deposit in the United States mail, and properly addressed with postage prepaid.
Notices to the MSO shall be given at:
Omega Orthodontics of Austin, Inc.
c/o Omega Orthodontics, Inc.
0000 Xxxxxx Xxxx Xxxx
Xxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxx
or other such addresses as may be delivered by the MSO to the New PC from time
to time in writing.
Notices to the New PC shall be given at:
0000 Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx X. Xxxxxxx, D.D.S.
or other such addresses as may be delivered by the New PC to the MSO from time
to time in writing.
9. Waiver. The waiver by either party to this Security Agreement of any one
or more defaults, if any, on the part of the other party, shall not be construed
to operate as a waiver of the other or future defaults under this Agreement.
This Security Agreement may be amended or modified only by the written consent
of both parties.
36
10. Additional Documents. The New PC agrees that it will duly execute and
deliver to the MSO any additional documents which may be reasonably necessary to
give effect fully to the security interest granted to the MSO hereunder,
including, without limitation, a financing statement on Form UCC-1.
11. Benefit. This Security Agreement shall inure to the benefit of and
shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State.
13. Defined Terms. Capitalized terms used in this Security Agreement which
are not defined herein but which are defined in the Agreement, shall have the
respective meanings ascribed therein.
37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first hereinabove written.
NEW PC: MSO:
OMEGA ORTHODONTICS OF
AUSTIN, INC.
By:____________________________ By:__________________________
Name: Name:
Title: Title:
XX. XXXXXXX:
_______________________________
Xxxx X. Xxxxxxx, D.D.S.
38
EXHIBIT E
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
A. Method of Invoking ADR Procedures
A. Method of Invoking ADR Procedures
1. These procedures may be invoked by any party to an agreement which
incorporates these procedures by giving written notice to the other of the
dispute and designating a person with decision-making authority (the
"representative") to act on behalf of the disputing party regarding the dispute.
The other party shall be required to respond to the disputing party's notice
within five (5) business days by designating in writing its own representative.
A party may choose more than one person to represent it. If a party appoints
only one representative, one or more of its officers may nonetheless attend such
meetings.
2. The parties, each acting through its representative, shall meet at a
mutually acceptable time and place within five business days after the
non-disputing party designates its representative to the other. At that meeting,
the parties shall attempt in good faith to negotiate a resolution of the
dispute, or failing that, to agree on a method for resolving the claim or
dispute.
3. If, within ten (10) business days after the first meeting or within such
longer period of time as the parties may mutually agree, the parties have not
succeeded in negotiating a resolution of the claim or dispute or agreeing on a
dispute resolution mechanism, they shall submit the dispute to mediation in
accordance with the procedures set forth herein.
4. The parties will jointly appoint a mutually acceptable mediator to
mediate the dispute. If the parties are unable to agree on a mutually acceptable
mediator within five (5) days after the conclusion of the negotiations described
in paragraph 3 above, then the parties shall select a neutral third party from
either the Center for Public Resources, New York, New York ("CPR") Panels of
Neutrals, the American Arbitration Association ("AAA") or the Association of
Attorney Neutrals ("AAN"), with the assistance of such organization, unless the
parties agree otherwise in finding a mutually acceptable mediator.
5. Acquisition shall bear 50% and the New PC and Xx. Xxxxxxx shall bear
39
50% of the fees and costs of the mediator and any fees and costs of CPR, AAA or
AAN.
6. The parties agree to participate in good faith in the mediation and
negotiations related thereto for a period of thirty (30) days from appointment
of a mediator by any of the parties or the CPR, AAA or AAN.
B. Mediation procedures
1. The mediator shall be neutral and impartial.
2. The mediator shall control the procedural aspects of the mediation. The
parties will cooperate fully with the mediator.
(a) The mediator is free to meet and communicate separately with each
party.
(b) The mediator will decide when to hold joint meetings with the
parties and when to hold separate meetings. There shall be no
stenographic record of any meeting. Formal rules of evidence will
not apply.
(c) The mediator may request that there be no direct communication
between the parties or between their attorneys without the
concurrence of the mediator.
3. Each party may be represented by more than one person, e.g., one or more
of its officers and an attorney. Each party will have a representative fully
authorized to negotiate a settlement of the dispute present.
4. The process will be conducted expeditiously.
5. The mediator will not transmit information received from any party to
another party or any third person unless authorized to do so by the party
transmitting the information.
6. The entire process is confidential. The parties and the mediator will
not disclose information regarding the process, including settlement terms, to
third persons, unless the parties otherwise agree. The process shall be treated
as a compromise negotiation for purposes of the Federal Rules of Evidence and
state rules of evidence.
7. The parties will refrain from pursuing administrative and/or judicial
40
remedies during the mediation process, except as otherwise expressly provided in
the agreement which incorporates these procedures.
8. Unless all parties and the mediator otherwise agree in writing,
(a) The mediator will be disqualified as a witness, consultant or expert
in any pending or future investigation, action or proceeding relating
to the subject matter of the mediation (including any investigation,
action or proceeding which involves persons not party to this
mediation); and
(b) The mediator and any documents and information in the mediator's
possession will not be subpoenaed in any such investigation, action or
proceeding, and all parties will oppose any effort to have the
mediator and documents subpoenaed.
9. If the dispute goes into arbitration, the mediator shall not serve as an
arbitrator, unless the parties and the mediator otherwise agree in writing.
10. The mediator, if a lawyer, may freely express views to the parties on
the legal issues of the dispute.
11. The mediator shall not be liable for any act or omission in connection
with the mediation.
12. The mediator may withdraw at any time by written notice to the parties
(i) for overriding personal reasons, (ii) if the mediator believes that a party
is not acting in good faith, or (iii) if the mediator concludes that further
mediation efforts would not be useful.
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C. Binding Arbitration
If the parties do not resolve the dispute through mediation within the
period provided in Part A above, the parties shall submit the matter to binding
arbitration before AAA, AAN or CPR, to a qualified sole arbitrator in accordance
with the then current CPR Rules for Non-Administered Arbitration of Business
Disputes or comparable AAA or AAN rules. The sole arbitrator shall be agreed
upon by the parties within twenty (20) days after either party elects to submit
any issue to arbitration or, failing that, shall be selected by the organization
to whom the parties selected for arbitration. A qualified arbitrator is one who
is familiar with the principal subject matter of the issues to be arbitrated
such as by way of example, healthcare services industry matters, management
consulting services generally or business law/corporate matters generally.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator shall not have the authority to award
multiple, punitive or consequential damages under any circumstances. If the
party initially raising the dispute to be resolved is New PC or Xx. Xxxxxxx, the
arbitration shall be held in Boston, Massachusetts, and if the party initially
raising the dispute to be resolved is the MSO or OMEGA, the arbitration shall be
held in Austin, Texas.
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