AMENDED AND RESTATED SERVICE AGREEMENT

Exhibit 10(nnn)

AMENDED AND RESTATED

SERVICE AGREEMENT

AMONG

NORTHLAND DENTAL PARTNERS, PLLC

FAMILY PERIODONTIC SPECIALISTS, P.L.C.,

FAMILY ORAL SURGERY SPECIALISTS, PLC,

FAMILY ENDODONTIC SPECIALISTS, PLC

and

PDHC, LTD.

Effective Date: January 1, 2009

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

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TABLE OF CONTENTS

(continued)

 

 

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AMENDED AND RESTATED

SERVICE AGREEMENT

This Amended and Restated Service Agreement (the “Agreement”) is made effective January 1, 2009, among Northland Dental Partners, PLLC, a Minnesota professional limited liability company, fka James Ludke, D.D.S., PLLC (“Northland”), its wholly owned subsidiaries, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, and Family Endodontic Specialists, PLC, all Minnesota professional limited liability companies (the “Subsidiaries,” and with Northland, collectively “Provider”), and PDHC, Ltd., a Minnesota corporation (“Service Company”).

Background Information

A. Provider operates dental practices providing dental services to the general public in and around the Minneapolis, Minnesota area through individual dentists who are licensed to practice dentistry in the State of Minnesota and who are employed or otherwise retained by Provider.

B. Service Company is engaged in the business of providing assets, personnel, and services to dental practices, other than such services as are directly related to or would improperly influence the provision of dental care or the practice of dentistry. Service Company’s services are intended to permit the dentists in such practices to focus their efforts primarily on rendering quality dental care.

C. Prior to December 31, 2008, Northland was the sole member in Metro Dentalcare, P.L.C., a Minnesota professional limited liability company (“Metro”), and Metro was the sole member in each Subsidiary. On December 31, 2008, Metro was merged with and into Northland, with the result that, among other things, Northland is now the sole member in each Subsidiary.

D. Metro, the Subsidiaries, and Metropolitan Dental Management, Inc., a Minnesota corporation (“MDMI”), are the parties to a Service Agreement dated September 25, 2007 (the “Metro Service Agreement”). Metro, the Subsidiaries, and MDMI have terminated the Metro Service Agreement as of the date of this Agreement.

E. Northland and Service Company are the parties to a Service Agreement dated January 1, 2008 (the “Original Agreement”), pursuant to which Provider engaged Service Company to provide such services as are necessary and appropriate for the day-to-day administration of the non-clinical aspects of Provider’s dental practice.

F. Northland desires to continue focusing its energies, expertise and time on the practice of dentistry and on the delivery of dental services to patients. Northland also desires to have Service Company provide its services to the dental practice formerly operated by Metro, which is now part of Northland’s practice, and to the dental practices operated by the Subsidiaries. As a result, Provider and Service Company (the “Parties”) desire to amend and restate the Original Agreement to provide for Service Company to provide its services to all of Provider’s dental practices, all as set forth in this Agreement.

 

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Statement of Agreement

The Parties hereby acknowledge the accuracy of the foregoing Background Information and agree as follows:

ARTICLE I

DEFINITIONS

Capitalized terms used in this Agreement but not otherwise defined herein shall have the respective meanings given those terms in the attached Exhibit A.

ARTICLE II

ENGAGEMENT AND AUTHORITY OF SERVICE COMPANY

2.1 Engagement . Provider hereby engages Service Company as its sole and exclusive provider of the Services, and Service Company hereby accepts such engagement, subject at all times to the provisions of this Agreement.

2.2 Authority . Service Company shall have all power, authority, and responsibility reasonably necessary to provide the Services and carry out Service Company’s other obligations under this Agreement. Without limiting the foregoing, Service Company shall have the authority to provide the Services in any reasonable manner Service Company deems appropriate to meet the day-to-day requirements of the business functions of Provider. Provider shall give Service Company 30 days prior written notice of Provider’s intent to execute any agreement obligating Provider to perform Dental Care or otherwise creating a binding legal obligation on Provider. Unless an expense is expressly designated as a Service Company Expense in this Agreement, all expenses incurred by Service Company in providing Services pursuant to this Agreement shall be Clinic Expenses.

2.3 Patient Referrals . The Parties agree that the benefits to Provider hereunder do not require, are not payment for, and are not in any way contingent upon the referral, admission, treatment, or any other arrangement for the provision of any item or service offered by Service Company to patients of Provider in any facility, laboratory, or dental care operation controlled, managed, or operated by Service Company. Likewise, the Parties agree that Service Company is not engaging, does not intend to engage, and is not required to engage in any referrals of patients to Provider or any similar activities, and neither the Service Fee nor any other amount paid to Service Company by Provider pursuant to this Agreement is being paid as consideration for or in connection with any such activities.

2.4 Internal Management of Provider . Matters involving the tax planning, investment planning, and internal management, control, or finances of Provider, including without limitation the compensation of dentists employed or retained by Provider, shall remain the sole and exclusive responsibility of Provider and its members.

The operations of Northland and the Subsidiaries, as Provider under this Agreement, shall to the extent practicable be treated as one operation for purposes of this Agreement, including without limitation for purposes of budgeting. Northland and the Subsidiaries shall be jointly and severally liable for all of Provider’s obligations to Service Company under this Agreement. However, Northland shall have the sole responsibility and authority for all decisions, consents, appointments, and other actions (hereinafter simply “actions”) to be made, taken, or given by Provider pursuant to or in connection with this Agreement, and each Subsidiary hereby irrevocably appoints Northland as such Subsidiary’s attorney-in-fact and agent, with full power of substitution, to take all such actions without any further involvement of such Subsidiary. All such actions shall be binding on the Subsidiaries, and Service Company shall have the absolute right to rely on all such actions taken by Northland.

 

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2.5 Practice of Dentistry . The Parties acknowledge and agree that: (a) Service Company is not authorized or qualified to engage in any activity that may be construed or deemed to constitute the practice of dentistry; and (b) notwithstanding anything in this Agreement to the contrary: (i) Provider, through its dentists, shall be solely responsible for and shall have complete authority, responsibility, supervision, and control over the provision of all Dental Care and that all Dental Care shall be provided and performed exclusively by or under the supervision of dentists as such dentists, in their sole discretion, deem appropriate, consistent with applicable law; (ii) Service Company shall not have or exercise any control or supervision over the provision of Dental Care; and (iii) to the extent any act or service required of Service Company under this Agreement is reasonably likely to be construed by a court of competent jurisdiction or by any applicable governmental agency to constitute the practice of dentistry, the requirement to perform that act or service by Service Company shall be deemed waived and unenforceable. For purposes of this Agreement and as the context permits, the term “dentist” shall be deemed to include those individuals licensed by the Minnesota Board of Dentistry to practice general dentistry or a dental care specialty such as orthodontics, endodontics, periodontics, prosthodontics, pediatric dentistry, oral surgery, public health dentistry, and oral pathology.

ARTICLE III

POLICY BOARD

3.1 Formation and Operation of Policy Board . The Parties hereby establish a policy board (the “Policy Board”) which shall be responsible for developing and implementing management and administrative policies for the overall operation of Clinics, subject to Section 3.3, below. The Policy Board shall initially consist of six members, of which three members shall be designated by Service Company, in its sole discretion, and three members shall be designated by Provider, in its sole discretion; provided that, unless otherwise agreed by the Parties the Policy Board members designated by Provider shall be licensed dentists employed by Provider. Each Party shall have the right to designate, remove, and replace its Policy Board designees at any time and from time to time upon notice to the other Party.

Any decision made by a Party’s Policy Board representatives shall be binding on that Party. Except as may otherwise be expressly provided in this Agreement or any rules, bylaws, or regulations adopted by the Policy Board, the act of a majority of the members of the Policy Board shall be the act of the Policy Board. The Policy Board’s decisions may be evidenced by either minutes of a Policy Board meeting or written action taken by the Policy Board members making the decision; provided that no written action signed by less than all of the Policy Board members shall be effective unless notice of such action is given to each Policy Board member who is not signing such action at least two business days prior to the effective date of such action. The decisions, resolutions, actions or recommendations of the Policy Board within its authority shall be implemented by Service Company or Provider, as appropriate.

The Policy Board shall hold regular meetings at such places and at such times (not less often than quarterly) as the Policy Board may determine from time to time. Special Policy Board meetings may be called by either Party or any two Policy Board members; provided that notice of any meeting which is not a regularly scheduled meeting shall be given to all Policy Board members at least five business days prior to the meeting, unless such notice is waived by the Policy Board members. Policy Board meetings may be held through the use of remote communications equipment so long as all members can participate with each other clearly during the meeting.

 

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3.2 Responsibilities of the Policy Board . The Policy Board shall have the following duties, responsibilities, and authority:

(a) Capital Improvements and Expansion . Any renovation and expansion plans and capital equipment expenditures with respect to Clinics shall be reviewed and approved by the Policy Board and shall be based upon economic feasibility, dentist support, productivity, and then-current market conditions.

(b) Annual Budgets . All annual capital and operating budgets prepared in accordance with Section 4.13(a) by Service Company (in consultation with Provider) shall be subject to the review, comment, and approval of the Policy Board. Notwithstanding the foregoing sentence, such budgets shall be subject to the review, comment, and approval of Parent.

(c) Marketing and Advertising . All advertising and other marketing of the dental services performed at any Clinic shall be subject to the prior review and approval of the Policy Board.

(d) Patient Fees; Collection Policies . Subject to Section 3.3, as a part of the annual operating budget, in consultation with Provider and Service Company, the Policy Board shall review and make recommendations concerning the fee schedules and collection policies for all dental and ancillary services rendered by Provider. Approval of the fee schedules shall be a Dental Decision.

(e) Provider and Payor Relationships . Subject to Section 3.3: (i) decisions regarding the establishment or maintenance of contractual relationships between Provider and outside or institutional dental care providers and third-party payors shall be subject to the review and recommendations of the Policy Board; and (ii) all discounted fee practices and schedules, including individual provider or specialty discount arrangements, preferred provider organization discounts and capitated fee arrangements, shall be subject to the review and recommendations of the Policy Board. Where there is no clear methodology for the allocation of capitated fees among Provider’s Dental Care Professionals, the Policy Board shall recommend the methodology intended to result in the equitable and appropriate allocation of all related fees consistent with the type and utilization of Dental Care covered under the capitation arrangement.

(f) Strategic and Operational Planning . The Policy Board shall review and approve the long-term strategic and short-term operational goals, objectives and plans developed by Service Company.

(g) Capital Expenditures . The Policy Board shall determine the priority of major capital expenditures. Notwithstanding the preceding sentence or any other provisions of this Agreement to the contrary, all capital expenditures must be approved by Parent.

(h) Personnel Planning . The Policy Board shall review and approve personnel manpower plans for Provider and Clinic-level support personnel developed by Service Company.

 

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(i) Risk Management . The Policy Board shall cause to be developed and implemented claims reporting procedures intended to ensure timely reporting to each Party of all patient claims made against either Party or its employees or independent contractors, as well as procedures for the timely review and monitoring of such claims, including without limitation reporting the resolution of such claims, including any Provider reimbursement decisions (collectively, the “Risk Management Procedures”); provided that any Dental Care related patient concern or claims reimbursement decision shall be a Dental Decision.

(j) Environmental Health and Safety . The Policy Board shall review, approve and monitor environmental and workplace health and safety guidelines, the goal of which is to achieve compliance with current national, state and local laws and regulations regarding environmental and workplace health and safety.

(k) Emergency Care Services . The Policy Board shall review, approve and periodically make suggestions for improving (i) the organization and delivery of emergency Dental Care by Provider, and (ii) the process and guidelines for ensuring an appropriate response by Provider to dental and in-Clinic medical emergencies as they may occur from time to time.

(l) Financial Review . The Policy Board shall review and monitor the financial performance of Provider with respect to the attainment of its budgeted goals.

(m) Provider Acquisitions . The Policy Board shall have the authority to approve or disapprove any merger or combination with or acquisition of any dental practice by Provider.

(n) Other . The Policy Board shall have such other duties, responsibilities, and authority as may be set forth in this Agreement or agreed upon by the Parties from time to time.

3.3 Dental Decisions . Notwithstanding the preceding section or any other provisions of this Agreement to the contrary, all Dental Decisions (defined below) shall be made solely by the dentist members of the Policy Board; provided that non-dentist members of the Policy Board may participate in the related analysis and discussion. For purposes of this Agreement, “Dental Decisions” shall mean decisions relating directly to: (a) types and levels of Dental Care to be provided and methodologies and techniques for the provision of Dental Care; (b) recruitment of dentists for Provider, including the evaluation of the background, experience, qualifications, specialties, and other credentials of such recruited individuals; (c) fee schedules for Provider’s services, including without limitation Provider’s usual and customary fee schedule; (d) to the extent required by applicable law, third party payor contracting; and (e) any other Dental Care related functions or decisions agreed upon by the Parties.

ARTICLE IV

RESPONSIBILITIES OF SERVICE COMPANY

During the Term, Service Company shall provide all such Services as are necessary and appropriate for the day-to-day administration of the business aspects of Provider’s operations, including without limitation those services set forth in this Article, provided that all such services shall be subject to the applicable Budget.

4.1 Clinics

(a) Service Company shall lease, acquire or otherwise procure Clinics at such locations as are approved by the Policy Board, taking into consideration the professional concerns of Provider. The expenses associated with any such leasing, acquisition, or procurement shall be Clinic Expenses. Any Clinic procured by Service Company for use by Provider shall be procured at commercially reasonable rates. Any move from a present Provider practice location shall be made only after Service Company has received Provider Consent.

 

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(b) In the event Provider is the lessee of a Clinic under a lease with an unrelated and nonaffiliated lessor, Service Company may require Provider to assign such lease to Service Company upon receipt of consent from the lessor. Provider shall exercise all reasonable efforts to assist in obtaining the lessor’s consent to the assignment. Any expenses incurred in the assignment shall be Clinic Expenses.

(c) Service Company shall be responsible for the repair and maintenance of each Clinic, in a manner consistent with Service Company’s responsibilities under the terms of any lease or other use arrangement relating to that Clinic, the costs and expenses of which shall be a Clinic Expense; provided that the costs and expenses of any repairs or maintenance necessitated by the negligence or willful misconduct of dentists or other personnel employed or otherwise retained by Provider shall be a Provider Expense, but one that is ignored for purposes of calculating the Calculated Margin and that therefore must be paid out of the Provider Retained Earnings.

4.2 Equipment

(a) Service Company shall provide all non-dental equipment, fixtures, office supplies, furniture and furnishings deemed reasonably necessary by Service Company for the operation of each Clinic and reasonably necessary for the provision of Dental Care.

(b) Service Company shall provide, finance, or cause to be provided or financed such dental related equipment as is reasonably required by Provider. Provider shall have final authority in all dental equipment selections, subject to economic feasibility as set forth in the budgets approved pursuant to this Agreement. Service Company may, however, advise Provider on the relationship between its dental equipment decisions and the overall administrative and financial operations of the Clinics. Except for Special Dental Supplies, all dental and non-dental equipment acquired for the use of Provider shall be owned by Service Company.

(c) Service Company shall be responsible for repairing, maintaining, and keeping in reasonably good condition (ordinary wear and tear excepted), and replacing (as necessary), all equipment provided by Service Company under this Agreement, ordinary wear and tear excepted, the cost and expense of which shall be a Clinic Expense; provided that the costs and expenses of any repairs, maintenance and replacement necessitated by the negligence or willful misconduct of dentists or other personnel employed or otherwise retained by Provider shall be a Provider Expense, but one that is ignored for purposes of calculating the Calculated Margin and that therefore must be paid out of the Provider Retained Earnings.

4.3 Laboratory Services . Unless otherwise prohibited by federal or state law, Service Company shall arrange for laboratory services (consistent with the requirements of applicable law), including without limitation dental appliance laboratory service, pathology laboratory service, medical laboratory service, and such other laboratory services as are reasonably necessary and appropriate for the operation of each Clinic and the provision of Dental Care therein.

4.4 Supplies . Service Company shall order, procure, purchase, own, and provide to Provider a reasonable inventory of Ordinary Dental Supplies and office supplies as are reasonably necessary and appropriate for the operation of each Clinic and the provision of Dental Care therein. Unless otherwise prohibited by federal or state law, Service Company shall also order, procure, purchase and

 

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provide on behalf of and as agent for Provider all reasonable Special Dental Supplies required by Provider to provide Dental Care, the cost of which shall be a Clinic Expense. Service Company shall exercise commercially reasonable efforts to ensure that each Clinic is at all times adequately stocked with all such supplies. The ultimate oversight, supervision and ownership of (a) all office and Ordinary Dental Supplies is and shall remain the sole responsibility of Service Company, and (b) all Special Dental Supplies is and shall remain the sole responsibility of Provider.

4.5 Capital Investment . Access to all needed working capital and capital expenditures approved by the Policy Board will be provided by Service Company. Service Company shall determine the source of capital to be invested, which may include (a) inter-company borrowings from Parent, and (b) borrowings, leases, or other financing methods through independent third-party financial institutions.

4.6 Support Services . Service Company shall provide or arrange for all printing, stationery, forms, postage, duplication, facsimile, photocopying, and data transmission and processing services, information services (including providing a computer system for clinic functions, billing, communications, and management), and other support services as are reasonably necessary and appropriate for the operation of each Clinic and the provision of Dental Care therein.

4.7 Quality Assurance, Risk Management, and Utilization Review . Service Company shall assist Provider in Provider’s establishment and implementation of procedures to ensure the consistency, quality, appropriateness, and necessity of Dental Care provided by Provider, and shall provide administrative support for Provider’s overall quality assurance, risk management, and utilization review programs. Service Company shall have the authority to monitor Provider’s level of conformance with such procedures and to report its findings to Provider.

4.8 Licenses and Permits . Although Provider shall be solely responsible for obtaining and maintaining all federal, state, and local licenses and regulatory permits required for or in connection with the operation of Provider and in connection with the operation of all dental equipment located in each Clinic, Service Company shall assist Provider with the implementation of a plan designed to ensure that all such licenses and permits are obtained and shall provide reasonable assistance to Provider in obtaining the same. Service Company also shall maintain all licenses and permits required for all equipment (existing and future) located at each Clinic.

4.9 Personnel . Except as provided in Section 5.2(d) of this Agreement and subject to Section 3.3: (a) Service Company shall employ or otherwise retain and shall be responsible for recruiting, hiring, and terminating all management, administrative, supervisory, clerical, secretarial, bookkeeping, accounting, and payroll personnel, laboratory technicians and personnel, dental hygienists, dental assistants, and other non-dentist personnel as Service Company deems necessary and appropriate for Service Company’s performance of its duties and obligations under this Agreement; and (b) the selection, training and supervision of all such personnel to be employed by Service Company shall be the responsibility of Service Company. Consistent with reasonably prudent personnel management policies, Service Company shall seek and consider the advice, input, and requests of Provider in regard to personnel matters. Service Company shall have sole responsibility for determining the salaries and fringe benefits of such non-professional personnel and for withholding all appropriate amounts for income taxes, unemployment insurance, social security, workers’ compensation, and any other withholding required by applicable law.

 

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4.10 Contract Negotiations . Subject to Section 3.2(e), above, Service Company shall advise Provider with respect to and negotiate, either directly or on Provider’s behalf, as appropriate, such contractual arrangements with third parties as are reasonably necessary and appropriate for Provider’s provision of Dental Care, including without limitation negotiated price agreements with third party payors, alternative delivery systems, or other purchasers of group dental care services; provided that no contract or arrangement regarding the provision of Dental Care shall be entered into without Provider Consent.

4.11 Billing and Collection . On behalf of and for the account of Provider, Service Company shall establish and maintain credit and billing and collection policies and procedures, and shall exercise reasonable efforts to bill and collect in a timely manner (and to the extent permitted by applicable law) all professional and other fees for all billable Dental Care provided by Dental Care Professionals. Service Company shall advise and consult with Provider regarding the fees for Dental Care provided by Provider (including any related discounting policy), it being understood, however, that Provider shall establish the fees (subject to Section 3.2(d), above) to be charged for Dental Care and that Service Company shall have no authority whatsoever with respect to the establishment of such fees. In connection with the billing and collection services to be provided hereunder, Provider hereby grants to Service Company, to the extent permitted by applicable law, throughout the Term (and thereafter as provided in Section 8.3), an exclusive special power of attorney and appoints Service Company, to the extent permitted by applicable law, as Provider’s exclusive true and lawful agent and attorney-in-fact, and Service Company hereby accepts such special power of attorney and appointment, for the following purposes:

(a) To bill Provider’s patients, in Provider’s name and on Provider’s behalf, for all billable Dental Care provided by or on behalf of Provider to patients.

(b) To bill, in Provider’s name and on Provider’s behalf, all claims for reimbursement or indemnification from insurance companies and plans, all state or federally funded dental benefit plans, and all other third party payors or fiscal intermediaries for all covered billable Dental Care provided by or on behalf of Provider to patients.

(c) To collect and receive, in Provider’s name and on Provider’s behalf, all accounts receivable generated by such billings and claims for reimbursement, to administer such accounts including, but not limited to, extending the time of payment of any such accounts for cash, credit or otherwise; discharging or releasing the obligors of any such accounts; suing, assigning or selling at a discount such accounts to collection agencies; or taking other measures to require the payment of any such accounts; provided, however, that extraordinary collection measures, such as filing lawsuits, discharging or releasing obligors, or assigning or selling accounts at a discount to collection agencies shall not be undertaken without Provider Consent.

(d) To deposit all amounts collected into the Provider Account which shall be and at all times remain in Provider’s name. Provider shall transfer and deliver to Service Company all funds received by Provider from patients or third party payors for Dental Care. Upon receipt by Service Company of any funds from patients or third party payors or from Provider for Dental Care pursuant to this Agreement, Service Company shall promptly deposit the same into the Provider Account.

 

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(e) To take possession of, endorse in the name of Provider, and deposit into the Provider Account any notes, checks, money orders, insurance payments, and any other instruments received in payment of accounts receivable for Dental Care.

(f) To sign checks, drafts, bank notes or other instruments on behalf of Provider, and to make withdrawals from the Provider Account for payments specified in this Agreement and as requested from time to time by Provider.

(g) To designate, remove, and change such signatories on the Provider Account as Service Company deems necessary or appropriate from time to time.

Upon request of Service Company, Provider shall execute and deliver to the financial institution at which the Provider Account is maintained such additional documents or instruments as Service Company may reasonably request to evidence or effect the special power of attorney granted to Service Company by Provider pursuant to this section and Section 4.12. The special power of attorney granted herein is coupled with an interest and shall be irrevocable except with Service Company’s written consent. The irrevocable power of attorney shall expire when this Agreement has been terminated, all accounts receivable purchased by Service Company pursuant to Section 7.6, if any, have been collected, and all amounts due to Service Company as described in Article VII have been paid.

4.12 Provider Account

(a) Power of Attorney . Service Company shall have access to the Provider Account solely for the purposes stated herein and shall use all funds on deposit therein in accordance with the terms of this Agreement. Provider hereby grants to Service Company an exclusive special power of attorney and appoints Service Company as Provider’s true and lawful agent and attorney-in-fact, throughout the Term (and thereafter as provided in Section 8.3), and Service Company hereby accepts such special power of attorney and appointment, to make withdrawals from the Provider Account for: (i) payments described in this Agreement; and (ii) such other purposes as Service Company deems appropriate (consistent with this Agreement), including without limitation daily transfers to one or more accounts owned by Service Company or its affiliates as part of cash management procedures established or adopted by Service Company or its affiliates from time to time; provided that to the extent that the aggregate funds withdrawn by Service Company from the Provider Account pursuant to this section (the “Aggregate Withdrawals”) exceed the aggregate amounts paid or payable to Service Company under this Agreement (the “Aggregate Payments”), then such excess shall be deemed to be held by Service Company as agent for Provider. Notwithstanding this exclusive special power of attorney, Provider may, upon reasonable advance notice to Service Company, request that Service Company draw checks on the Provider Account for Provider Expenses and such other amounts as may be due to Provider under this Agreement, subject to Section 4.12(b) of this Agreement.

(b) Priority of Payments . Payments described in this Agreement to be made from funds in the Provider Account shall be applied (to the extent available) in the following order of priority:

 

(i)

Reimbursement of Clinic Expenses to Service Company pursuant to Section 7.1;

 

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(ii)

Repayment of advances made by Service Company to Provider pursuant to Section 7.2;

 

(iii)

Payment of the Service Fee to Service Company pursuant to Section 7.3;

 

(iv)

Payment of Provider Expenses other than those to be paid out of Provider Retained Earnings; and

 

(v)

Payment of remaining Provider Expenses and, to the extent requested by Provider, distribution of the remaining Provider Retained Earnings.

(c) Further Assurances . Promptly upon request by Service Company, Provider shall execute a separate power of attorney in form reasonably satisfactory to Service Company for the purpose of further confirming or evidencing the rights granted to Service Company under Sections 4.11 and 4.12.

4.13 Financial Matters

(a) Annual Budget . At least 30 days prior to the commencement of each calendar year, Service Company, in consultation with Provider, shall prepare and deliver to the Policy Board for its review and approval a proposed Budget, setting forth an estimate of Provider’s revenue and expenses for the upcoming calendar year (including without limitation the Service Fee associated with the services provided by Service Company hereunder).

In the event that a proposed Budget is not approved by either the Policy Board or Parent (pursuant to Section 3.2(b)), Service Company, in consultation with Provider, shall promptly revise such Budget, taking into consideration the comments of the Policy Board or Parent, as applicable, and shall deliver such revised Budget to the Policy Board for approval. In the event that a proposed Budget has not been approved by both the Policy Board and Parent by the beginning of the calendar year, then, until a new Budget has been approved by both the Policy Board and Parent, the Budget for the prior year shall be deemed to be adopted as the Budget for the then-current year except that (i) the Budget for Clinic Expenses shall be adjusted to account for any changes beyond the reasonable control of Service Company, including without limitation changes in laboratory fees or supply costs and automatic increases in rent or other occupancy costs, (ii) Service Company shall have the right to adjust the Budget for reasonable compensation increases for its employees, for changes in employee benefits or related costs, and for expenses related to new employees reasonably necessary for Service Company to perform the Services, and (iii) the Budget for capital expenditures shall include only expenditures for maintenance or emergency needs and any other capital expenditures expressly approved by both the Policy Board and Parent from time to time.

Notwithstanding any provisions of this Agreement to the contrary, for purposes of all calculations related to the Service Fee for any period the amount of Provider Expense used in such calculations for that period shall be determined by applying the methodology for compensating dentists and paying other budgeted Provider Expenses contained in the then-applicable Budget (e.g., if the Budget requires a dentist to be paid a base salary, that salary shall be used for purposes of such calculations, and if the Budget requires that a dentist be paid formula-based compensation, that formula shall be used for purposes of such calculations); provided that the Parties shall exercise reasonable efforts to adjust the Budget from time to time as necessary to

 

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reflect changes in Provider’s staff of dentists and/or compensation and/or other budgeted Provider Expenses (it being understood that neither Party shall be obligated to agree to Budget adjustments deemed by such Party to be unreasonable under the then-relevant circumstances).

(b) Accounting and Financial Records . Service Company shall establish and administer accounting policies and procedures, internal controls, and systems for the development, preparation and safekeeping of administrative or financial records and books of account relating to the business and financial affairs of Provider, all of which shall be prepared and maintained in accordance with GAAP. Service Company shall prepare and deliver to Provider, within 45 days after the end of each of the first three calendar quarters during each year and within 90 days after the end of each calendar year, a balance sheet and an income statement reflecting the financial status of Provider in regard to the provision of Dental Care as of the end of each such calendar quarter and each such calendar year, as applicable, all of which shall be prepared in accordance with GAAP. In addition, Service Company shall prepare or assist in the preparation of any other financial statements or records as Provider may reasonably request.

(c) Review of Expenditures . One of Provider’s representatives to the Policy Board shall review all expenditures related to the operation of Provider, but such representative shall not have the power to prohibit or invalidate any expenditure.

(d) Tax Matters

(i) General . Service Company shall prepare or arrange for the preparation of all tax returns and reports of Provider required by applicable law, which returns and reports shall be prepared by an accountant reasonably acceptable to Provider.

(ii) Sales and Use Taxes . Service Company and Provider acknowledge and agree that to the extent that any of the services to be provided by Service Company hereunder may be subject to any state sales and use taxes, Service Company may have a legal obligation to collect such taxes from Provider and to remit the same to the appropriate tax collection authorities. Provider agrees to pay any and all applicable state sales, use, gross receipts, and other similar taxes and charges (other than taxes on Service Company’s net income) with respect to any amount paid to Service Company hereunder and that such amounts shall be a Clinic Expense.

4.14 Reports and Records

(a) Dental Records . Service Company shall establish, monitor and maintain procedures and policies for the timely creation, preparation, filing and retrieval of all dental records generated by Provider in connection with Provider’s provision of Dental Care; and, subject to ap